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Starting a Business

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Considerations for Establishment of a Business

Before starting a business, the following questions should be considered:

  • What are my personal goals?
  • Do my activities and the project have the acceptance and support of my immediate family and friends?
  • What technical capabilities do I bring to the enterprise?
  • Do I already have a business licence [Gewerbeberechtigung]?
  • Is there a market for my idea?
  • Am I willing to work with partners?
  • Which business structure is appropriate in consideration of the foregoing?
  • Do I need employees?
  • Where will this business be located?
  • What investments will be needed?
  • How will on-going costs be met?
  • How will investors' expectations and operational costs be met?
  • Is there any support for my project?
  • What is the minimum turnover needed?
  • Do I need facility permits from the authorities [Betriebsanlagengenehmigung]?
  • What record keeping is required and/or important for my business?
  • Does computer data processing make sense for my business?
  • Will my proposed project pay for itself?
  • What advice centres are there?
PLEASE NOTE
At the beginning of your business activity it is recommended to seek advice for your company’s founding structure, financing and legal issues!
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The Austrian Federal Economic Chambers [Wirtschaftskammern Österreichs (WKÖ)] offer consultations and/or workshops related to the founding structure.

Capital Requirements [Kapitalbedarf]

In the start-up phase of an enterprise unexpectedly high costs can arise. In order to secure the liquidity for start-up and to maintain an on-going enterprise, it is necessary to determine the capital requirements with great care.

Capital Requirements for Investments

In establishing a business, the primary investments are those that go into the fixed assets (e.g. real property, buildings, machines, vehicles, and office equipment). In addition to the direct costs, the capital requirements must include additional expenses, such as taxes on real estate transactions, legal fees, and fees and costs related to the procurement of capital. Furthermore, a reserve of approximately ten per cent should be added.

Capital Requirements for Inventory and Raw Materials Storage

In manufacturing enterprises the materials consumption needed for the annual turnover expected should be determined. The annual storage costs of raw materials must not be overlooked. In the case of retail businesses, it is important to determine the cost of fitting out the shop. The cost of maintaining the necessary inventory must be calculated over and above the payments to suppliers.

Day-to-Day Capital Requirements

Especially during the initial phase of a new business, the running costs can often exceed the income. This depends in part on whether payment for goods and services is made immediately, or whether in a particular business sector payments are made on fixed dates. The following are to be considered in determining operating funds needed:

  • Accounts receivable
  • Personnel costs
  • Rent or lease expenses
  • Office and administrative expenses
  • Energy costs
  • Vehicle costs
  • Interest
  • Necessary private withdrawals, etc.
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It is recommended to plan a sufficient reserve and to try to think what might be "unforeseen". Your operating fund needs can be reduced by keeping accounts current, keeping reasonable inventories, monitoring payments closely, and by orderly reminders.

Obtaining Capital [Kapitalbeschaffung]

Personal Funds

After determining the capital requirements, it should be calculated how much of them can be supplied. There is no general rule on how much capital should be brought from one's own funds. This is strongly business dependent.

A detailed list of available cash, savings accounts, and assets should be made which can be brought to the business. In order to increase the personal funds portion of the capital needed for the enterprise, a partner might be taken on, someone who will co-invest and work with you. Another possibility is a "silent partner", someone who participates only via a cash investment.

PLEASE NOTE
Do not forget the fact that business partners also participate in the profits of the enterprise, and be sure to clarify ahead of time the questions of liability in case of a loss. The difference between your calculated capital requirements and your personal funds must be supplied by outside capital.

Outside Capital

Outside capital is obtained primarily by borrowing, that is on credit. It is useful to differentiate among the following main lender groups:

Investment Loans [Investitionskredit]

Investment loans serve for financing fixed assets (e.g., real estate, buildings, machines, vehicles, office furniture). These loans are granted on a long-term basis, i.e., they typically have terms of four to twenty years.

Annuity-type loans have the advantage that the (monthly) payment amount remains the same over the term, so the loan expenses in the first years are lower than in the case of instalment loans. This makes it easier to deal with any first-time production difficulties.

With instalment-type loans the amount of the repayment and interest which you must pay per year is higher in the first years than with an annuity loan, but then, however, the payments regularly decrease.

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Never judge the costs of a loan exclusively by the interest rate!

In order to be able to calculate the actual costs of a loan correctly, you need exact information about:

  • Interest rate
  • Term of the loan
  • Number of instalments and their due dates
  • Additional expenses of the loan, fees and handling charges
  • The way the interest is computed (date on which the rate of interest is set)
  • The way the repayment is computed (the time at which the loan is paid off and the debt retired)

Check to see whether you can take advantage of a promotional loan.

Leasing

Leasing is a frequent financing alternative. A lease contract allows capital goods to be rented and bought – after a certain period of time – according to an agreed upon residual value (lease-to-buy plan).

One advantage of leasing is that it preserves your own capital funds, i.e., the total investment amount does not have to be paid at once. You can shape the repayments flexibly before the contract terminates.

Disadvantages of leasing are:

  • Once the final lease contract is signed it cannot be changed
  • Changes in interest rates change the lease instalment payments
  • A premature dissolution of the lease contract or the late payment of an instalment can lead to higher cost burdens than from financing with a loan
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Confer in each case with a leasing expert (e.g. financial trustee, management consultant).

Bank Overdraft Allowance [Kontokorrentkredit]

Bank overdraft loans serve on-going business and commercial transactions. A right to a loan granted by a bank makes it possible for you to control business operating transactions. You are free to decide the loan amount up to the agreed upon credit limit without formalities. Interest is charged only for the amount of the loan actually used. However, this kind of flexible credit results in additional expenses and fees, so bank overdrafts should only be used for short-term financing needs.

Discuss details with your bank and compare the different terms and conditions.

Credit Granted by Suppliers [Lieferantenkredit]

Credit granted by suppliers is the most expensive of all loans. This is often not noticeable at first (sight). It is granted informally and results from the case when payment for goods is not made immediately upon receipt, but only after a certain time period (e.g., the supplier allows payment to be made in 30 days).

The sentence "payable within ten days at two per cent discount or within 30 days without discount (net)" on an invoice means that you may take two per cent off the invoiced amount within the first ten days. That corresponds to an annual interest rate of 36 per cent and should be taken, if solvency permits, even if it means using your bank overdraft provisions.

Choice of Legal Structure

In the course of establishing a new enterprise, choosing the proper legal structure is crucial. The legal structure depends foremost on the

  • Number of participants (one or more entrepreneurs)
  • Scope of the enterprise
  • Type of financing
  • Type and extent of the liabilities, etc.

The structures of both privately-held firms and those of public limited companies have pros and cons, and these should be weighed. It is recommended to take advice from experts or your tax advisor!

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Detailed information on the choice of the legal structure can be found on the web site of the Federal Ministry of Science, Research and Economy [Service "Unternehmensgründung" des Bundesministeriums für Wissenschaft, Forschung und Wirtschaft (BMWFW)] and on the web site of the Business Start-up Service [Gründerservice] of the Austrian Federal Economic Chambers [Wirtschaftskammer Österreich (WKÖ)].

Women as Entrepreneurs

For the first stages in establishing a business or company, special places have been set up where experienced, woman-specific consultation for women founders and entrepreneurs is offered and where business-minded women are available to facilitate steps toward independence.

Addresses and Links

Advice Centres

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You also can get information concerning the European Union (EU) at Europe Direct (leading to sites in different languages). Your questions will be answered by phone (free of charge).

More Information

Additional information can be found on the German website at USP.gv.at.

Last update: 01.03.2014
Please note .
Approved by
Federal Chancellery – HELP Editorial Staff

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