The SocialLite start-up budget is approximately $500,000, and this amount will be contributed towards the application development and advancement. For the start-up capital, the company has $300,000 which has been resourced from the stakeholders’ contribution. Also, the company is looking at the prospects of acquiring a loan of $200,000 that will be repaid in 6 years. The $500,000 amount will be used to facilitate the financial aspect of the entire project. As a start-up, the financing will be resourced from six-year loan and the capital. Below is an illustration of the initial start-up costs that have been projected.
Requirements and Expense for the Start-up
For the start-up to commence, the project will require financing for the professional services of legal fees, occupancy, and permits and licenses. Also, expenses for insurance, accounting, equipment, utilities, income, promotion and advertising, supplies, wages, and salaries will need to be accounted for. These fees are the compensation for services conducted by an Attorney, a law firm, or a lawyer. In the case of supplies, they are small, but very significant aspects of a start-up and these include office items such as printing papers, planners, notebooks, graph papers, stationery, and file folders among others. They make work easier and facilitates record keeping.
Legal fees – $5,000
Occupancy – $3,000
Permits and licenses – $6,000
Insurance – $4,000
Accounting – $10,000
Equipment – $7,000
Promotions and advertising -$2,000
Salaries and wages -$20,000
Total Expenses $112,000
As seen from the figures above, the total expenses at the start-up amount to $110,000, which will be deducted from the initial capital of the company. These expenses will lay the foundation for the success of the SocialLite App. More so, the expense will offset the needs that come with starting a project like this one. Start-up expenses are the most important expenditures at the start of a project (Burns and Jim 52). Expenses such as the legal fees, licenses and permits are essential when they are catered for because these will decide whether the project will commence or not. Also, expenses such as utilities, accounting, and equipment are significant to the success of the project (Burns and Jim 53). More importantly, salaries and wages are to be accounted for to make sure that the stakeholders and personnel is being paid for their work in developing the SocialLite App.
Required cash $100,000
Expenses to be funded $114,000
Assets to be funded $330,000
Total funding needed $444, 000
Capital and Liabilities
Additional investments $200,000
Expenses on start-up $112,000
Total capital $188.000
Funding required $568,000
Personnel costs for the project will amount to approximately $20,000, insurance will cost $10,000, rent will be $8,400 annually, and salaries will amount to $40,000. Taxes will cost $15,000, repair $1,000, and miscellaneous subsidies will be $1,000. The company has a capital of $300,000 that is ready for the start-up. It will facilitate offsetting the initial expenditures for the project. Also, the project will need an injection of $200,000 cash from a loan because the initial capital is not enough for the start-up and will aid in a strong start to the project. More so, to stay in business, an additional injection of an extra $68,000 will be needed. This will facilitate the catering of additional expenses and emergencies.
Figure 1: Revenue growth chart.
In the revenue growth chart above, for the first year, the SocialLite App anticipates making revenue returns of about $500,000 for the first year, $650,000 for the second year, and $750,000 in the third year. The SocialLite App should be able to break even starting from its sixth month of operation and sales should be on a rapid increase. During this period, the profits are expected to be approximately $100,000 for the first year, $150,000 for the second year and $200,000 for the third year. Gross margin for year one is anticipated to be approximately $400,000, second-year $520,000, and third year $600,000. In this case, the company does not expect any form of financial problems.
Advertisement Costs on SocialLite App
Online advertising has over the years advanced rapidly, and social media companies are making huge profits from them (Burns and Jim 56). The SocialLite App will be a popular and mainstream App and will present the best platform for online adverts. When users bring their advertising campaign online with SocialLite, they get the opportunity to present their brand to customers who are likely to be looking for the user’s products and services. Under the basis of cost per click prices, each advertisement on the SocialLite App platform will cost between $1.00 and $2.0 per click. Therefore, small businesses on average that will use the SocialLite App advertisement as their business strategy of online advertisements, they will result in spending between $9,000 and $10,000 in a month, and this translates to $100,000 and $200,000 annually.
Burns, Paul, and Jim Dewhurst, eds. Small business and entrepreneurship. Macmillan International Higher Education, 2016.