Initial Capital Investment

Initial Capital Investment

Before investing any amount of capital into a business, organisation or idea, It is crucial that research is conducted into the market and the market share of the business. From this, an estimation can be gained if it is a wise idea and what the possible return maybe.

The initial capital investment must be sufficient to cover all costs of the setting up, opening and running of the business until the business is making enough income from sales and services to aide or cover all costs of running of the business.

The first main expenditure the business will occur is Capital expenditure; this includes purchase of land and buildings to be used for the business over several years, and purchases of fixtures and fittings, computers, software and equipment that will be beneficial to the business over periods in excess of one year.

It is important that Mr Myne, appreciates that the points of this type of expenditure is to generate extra profit for the business. If the expenditure does not contribute to generate to business profitability it should not be made. Sometime it is not easy to see the connection; how form example buying specific software or equipment can contribute to the profitability factor, so all factors should be addressed before discarding a purchase or change.

Capital Cost Analysis:

Initial investment = Ð'Ј 250 000

Break down:

Building Cost ((Rent)office operating premises): Ð'Ј 120 per week excluding bills

Ð'Ј 120 * 52 = Ð'Ј6240 per year

Bills including (gas, electricity, telephone): Ð'Ј 2000 per year

Fixtures and fittings (desk tables chairs lights etc): Ð'Ј 3000

Computer, Hardware and Software inc licences : Ð'Ј 10000

Advertising (News paper, Web Site, PC Magazines, Flyers) : Ð'Ј 2000

Wages (9 members of staff): 1 x Database Designer Manager: (Ð'Ј 22,000 pa)

3 x Head database designer: (3x Ð'Ј 19,000 pa)

4 x Assistant designers: (4x Ð'Ј16,000 pa)

1 x Receptionist: (Ð'Ј12,000 pa) each

Total Wager per year: Ð'Ј 155,000

Total operating costs per year Ð'Ј 178,240

Return on Capital

The fitness club should see substantial gains, in the return on capital of the implemented computer system. The system will automatically show when a member is required to pay for their membership again. This will significantly help the fitness clubs cash flow. This is because this should ensure that payments are made on time and are off the correct amount.

The implemented computer system will help with the access that the members have to enter the gym. This is because, there will be different types of membership, dictating what times you can visit the gym and the areas you are allowed to enter. The swipe card system will ensure that this happens, preventing members paying for the basic package and having access to the full higher priced package.

The system will also allow for the analysis of customer levels. From the number of members that have swiped into the gym, it will be easy to view the busy periods during the days, weeks and months. This will help the fitness club plan it's staffing levels, to ensure that they are not over or under staffed. Also, customer levels can be viewed, if the fitness decides to run special promotions on certain days. This will allow the club to see, which promotions work and which don't.

With the computer system, holding a record of all members details on a database, correspondents will be able to be sent out to customers very easily. This will include information on payments and promotions.

The new system will also be an effective time saving tool. Instead of staff having to search through large amounts of paperwork to find specific information, they can easily accessed at the click of a button. For example if a customer calls requesting to book a place on one of the fitness classes, the assistant will be able to reserve the place if there is a place available. This will prevent the club from over booking it's classes, which would annoy customers if they were turned away.

The new computer system will help with all area's of the fitness club. This should help the club run as a business more effectively and efficiently. Making the fitness club a more desirable place to go for customers. This should increase the fitness clubs turnover thus increasing profits. The initial outlay for the new system would be Ð'Ј1762.99. This seems like a large one off payment, but the fitness club should recoup the money very easily. If the club charged Ð'Ј25 a month/Ð'Ј300 a year for a membership, which is relatively cheap compared to other fitness clubs. It would only require 6 new members to join the club

The drawbacks are that computer systems quickly become outdated, and need replacing every two to three years. This could become a problem if you don't budget for such an investment. Also, if you want to sell your old system it is virtually worthless after a few years.

Working Capital

It is important that the amount of capital invested can be maintained throughout the business. This is referred to as Working Capital. Working capital measures how much assets a company has available to build its business. In this case we need to make sure that we have enough assets to fund maintenance costs and other costs involved. If the solution provided to businesses fails, will we be able to fund & gain profit from arranging another solution? And will this solution be viable?

The amount of working capital can be positive or negative, depending on how much debt the company will be carrying. This could be based on overheads and miscalculating costs of maintaining the