Understanding the Cost of Capital
In the ever-evolving realm of sustainable energy and entrepreneurship, there are many things that need to be considered when a person begins the process of starting a business. When anyone starts their own company or business, they all need the same things: an idea or concept to offer others, ways to produce the idea or concept, and CAPITAL.
My idea for a company would be one that offers education to the public and consulting on energy efficiency. Because this is an idea that has been done, but on a much smaller scale, I would need to convince a potential funder that my company would be capable of reaching a much larger community. This would mean that there would be a much larger number of customers, which, in turn, leads to more profit.
Some of the key things that I need to be able to explain to a potential funder of my project are that this concept is not offer education and consulting, which will actually pay off everyone in the long run. When people use less energy, due to energy efficiency, the entire planet will benefit. Also education is an invaluable thing that would be helpful in working toward other future goal in creating a more sustainable future.
I would use the Return on Investment calculation to explain our potential for success in the market. This calculation is:
I would also have to take into consideration additional costs such as licensing of educators and counselors, to get a certification to advise and teach.
My only concern for this kind of investment, is what would the time frame be for the investment to pay off? I’d want to know how you plan on starting a large-scale company right off the bat, marketing strategy, where will you primarily be located, who and how will you hire and train, etc. A company’s biggest expense is the payroll and if you have high turnover, it’s going to prolong the payback time.
My blog: http://engr312.dutton.psu.edu/2014/10/21/important-of-financing/
Hi Amy,
I really enjoyed that you looked at obtaining capital from the viewpoint of your own business and brought your own ideas into play. I think you have a great start and I loved that you addressed the issue of appealing to investors with a business that has already been done. It will certainly take a different approach to attract capital than if it was a new idea. While I also agree that Investors (especially those focused on renewable energy and sustainability) will be interested in participating in a venture that helps to educate communities on the benefits of renewable energy, I think the bottom line is that an investor is going to want to see the dollars. They want to know that first and foremost they are receiving a good return on their investment.
Thanks for sharing your ideas!
Jennifer