594 Technology: Engineering Our World Copyright Goodheart-Willcox Co., Inc. Obtaining Capital The amount of startup money your business will need depends on the type of business. Plan for enough operating funds to keep the company going for the school year. You may need to borrow money. If so, how much is required? When will the money be needed? What is the best source for fi nancing your business? From a corporate point of view, there are only two ways to raise money. Debt occurs when you take a loan from a bank or other fi nancial institution. These institutions do not usually invest directly in a business. They make money from the interest they charge on the money they lend. Your business must repay the money, plus interest, regardless of how well the business is doing. You may hear people refer to debts as liabilities. Equity, on the other hand, does not have to be repaid. Instead, people who provide equity invest in the company. They own part of the business. If the business fails, the investors lose their money. If the business is successful, investors share in the profi t. The disadvantage of using equity is that the investors own part of the company and have control in the business (Figure 20-15). Entrepreneurs often fi nance their startup costs using personal credit cards or savings. Other alternatives include negotiating supplier credit, obtaining personal loans from banks, or arranging loans from family members. Specifying a Budget A budget is an estimate of costs and expenses that a company does not want to exceed. Planning a budget is an important tool for making a company successful. To create the budget for your company, fi rst determine all of the things you will need. Include the cost of equipment or tools needed, as well as supplies and any overhead expenses (utilities, rent, and salaries). The cost of equipment and tools is generally a startup cost. It only happens once. Overhead expenses are ongoing expenses that the company will need to pay on a regular basis. Next, list your startup money and expected profi ts. Compare the expenses and money on hand. Plan to spend only the money that is available at a specifi c time. The purpose of budgeting is to ensure that you do not spend more money than you make, thus causing your business to fail. Financial Factors For a class-based business, you may be able to use school facilities. This will signifi cantly lower your costs. The school may even allow you to use the space and any needed equipment free of charge. In your business, as in any business, low overhead costs and low spending are better than taking on large debts. catshila/Shutterstock.com Figure 20-15. Keeping accurate account of finances helps ensure that a company remains profitable.