Purchasing and Financing 2024

4. CAPITAL REQUIREMENT PLANNING
Students can draw up a capital requirement plan and a cash flow statement.
There are two key questions to answer when planning a company’s capital requirements:
Firstly:
Secondly:
What must be purchased to initially set up an enterprise and what is the
total amount of money needed for this purpose?
What is the amount of money necessary to operate a enterprise on a dayto-day
basis in order to secure its liquidity at any time?
EXAMPLE:
An inventor developed a new type of plastic lid for bottles. To exploit the invention, he
intends to start his own company. He sets up the following planning:
The lids will have to be produced on two machines and afterwards have to be stored. The
customers will take delivery of their orders at the warehouse.
He will need the following to start the enterprise.
A plot for the company R 500 000
The building premises R2 000 000
Machinery R 400 000
Warehouse equipment R 100 000
Raw materials for 40 days R 50 000
Outstanding Product development loan R 500 000
Total Start-up Capital Required R3 550 000
He will need the following to run the enterprise on a day-to-day basis
Personnel costs
R1 700 per day
Energy costs
R 400 per day
Sundry costs
R 400 per day
Total Running Capital Required
R2 500 per day
If he expects the first payments from clients after 40 days of production, he will require
R100 000 to start running the business.
He will also need to make provision for unexpected situations and keep aside a cash
balance of R100 000 for this purpose.
His total Capital requirement will then be:
R3 550 000 + R100 000 + R100 000 = R3 750 000
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