Having become assured that the foregoing conditions have been fully met let us proceed with the train of thought. It is necessary to lay out a certain sum for plastic injection molds plant equipment and operating expenses. The amount needed will be governed entirely by the size of plastic injection molds plant required to produce the items previously determined. Of course, the major part of this capital investment will go into injection molding machine equipment, boiler, high and low pressure pumps, an accumulator and a compressed air system, but some of the smaller necessities such as piping, valves, finishing machines, furniture and fixtures, must not be omitted from the calculations.
If selfcontained injection molding machine are going to be used there will be no need for the machine auxiliary equipment. Whether the funds for procurement of this machinery shall be placed at $10,000 or $100, 000 is contingent also upon the size of plant to be built. An other factor which enters into the determination of this figure is the type of machinery purchased. Returning to the capital required, however, it should be kept in mind that the source of this money is of utmost importance.
All enterprises of whatever nature in business are founded on either money or credit and the terms of financing have a great deal to do with the fixed capital charges under which this enterprise must labor. It is essential then that any such terms be distinctly and thoroughly understood before any papers are signed. A misunderstanding in this direction may prove to be a hazard too difficult to overcome at a later date and very often failure may become obvious even before the project is far under way. Terms of financing should be such that provision is made for any exigencies that might arise during the course of the first few years.
It is a fairly simple matter to prognosticate certain conditions, but many times sufficient allowances are not made. An engineer when designing a bridge has to figure live and dead loads, stresses, and strains in every strut. After he has completed his calculations he then applies what is known as a “factor of safety”—which is actually nothing more than a ratio. He first theoretically calculates safe beam sizes and then multiplies by a certain constant to take into account the unknown hazards, such as possibly a record breaking snowfall or some other unusual happening.
In business, there are unfortunately a great many more hidden hazards than there are in the safe construction of a bridge, but after taking into account everything that can possibly happen it is always a sensible idea to apply a factor of safety of at least 2 to 1. This, of course, should not be interpreted too literally and does not mean that if $100,000 was decided upon as the amount necessary for fixed investment and operating expenses, the figure should be doubled. It does mean, however, that if fifty percent were set aside for operating expenses that an additional $50,000 would be adequate insurance for all contingencies.
So many enthusiastic enterprisers subconsciously deceive themselves and awaken only too suddenly (and usually too late), to find that they had been too optimistic at the outset. The application of a definite factor of safety should positively be made and will, in many instances, be the means of sustaining a business otherwise doomed to failure through lack of sufficient funds for continuance.