Financing Options

Fortunately, you can draw on your newly acquired accounting skills to prepare the first section - the one in which you'll specify the amount of cash you need. You start by estimating your sales (or, in your case, revenue from laundering clothes) for your first year of operations. This is the most important estimate you'll make: without a realistic sales estimate, you can't accurately calculate equipment needs and other costs. To predict sales, you'll need to estimate two figures:

1. The number of loads of laundry that you'll handle
2. The price that you'll charge per load

You calculate as follows: You estimate that 5 percent of the ten thousand students on campus will use the service. These five hundred students will have one large load of laundry for each of the thirty-five weeks that they're on campus. Therefore, you'll do 17,500 loads (500 × 35 = 17,500 loads). You decide to price each load at $10. At first, this seemed high, but when you consider that you'll have to pick up, wash, dry, fold, and return large loads, it seems reasonable.

Perhaps more important, when you projected your costs - including salaries (for some student workers), rent, utilities, depreciation on equipment and a truck, supplies, maintenance, insurance, and advertising - you found that each load would cost $8, leaving a profit of $2 per load and earning you $35,000 for your first year (which is worth your time, though not enough to make you rich).

What things will you have to buy in order to get started? Using your estimate of sales, you've determined that you'd need the following:

• Five washers and five dryers
• A truck to pick up and deliver the clothes (a used truck will do for now)
• An inventory of laundry detergent and other supplies, such as laundry baskets
• Rental space in a nearby building (which will need some work to accommodate a laundry)

And, you'll need cash - cash to carry you over while the business gets going and cash with which to pay your bills. Finally, you'd better have some extra money for contingencies - things you don't expect, such as a machine overflowing and damaging the floor. You're mildly surprised to find that your cash needs total $33,000. Your next task is to find out where you can get $33,000. In the next section, we'll look at some options.