Starting a business and making it successful are two different things. This couldn’t ring truer in the world of start-ups where businesses face challenges like inadequate funding, rising costs, regulatory compliance, and economic uncertainty.
However, while the challenges seem overwhelming, bootstrapped startups can effectively manage their finances with smart budgeting tips.
Budgeting allows entrepreneurs to make the most of every pound and opportunity. It helps them leverage their resources to the fullest while managing daily operations and tasks with ease.
Budgeting prepares startups to better navigate financial complexities, achieve business goals and improve efficiency. Having an effective budget leads to better allocation of resources, aids in informed decision-making, and gives you clarity about your business’s financial health.
Whether your goal is to improve cash flow or accelerate your startup’s growth, smart budgeting can help! This article explores a few smart budgeting tips your startup can use to create a solid financial foundation.
1. Create a Cash Flow Budget
You may have heard about smart budgeting before but did you know that you could budget your cash flow as well? Given that cash flows fuel your startup, it’s an important component of any effective budget. Cash flow budgets are different from regular budgeting which are often used to achieve sustainable business growth or generate profits.
A cash flow budget helps you understand if you have enough cash inflow to keep your startup going. While a profit and loss statement might help you do this, it may not be enough to project your cash flow six months down the road. Startups can utilise cash flow budgets to manage resources better and prepare for any changes or fluctuations that may occur.
For example, many aggregate suppliers in Norfolk used cash flow planner tools to better plan and manage their financial resources. It helps them view monthly cash flow projections and adjust their business goals accordingly. They also used this information to automate their cash flow processes, which helped grow their business sustainably.
2. Use Automation Tools for Financial Management
Automation has greatly changed the way startups function and has allowed bootstrapped startups to save time and money. While investing in automation tools like accounting software may seem like an unnecessary expense, it helps improve financial efficiency and boost productivity.
Startups spend an inordinate amount of time preparing tax invoices and revising errors. Automating key processes, like bookkeeping, can help startups reduce these errors, be audit-ready, and file their taxes without any hassle. It also helps retrieve financial data easily and store sensitive information safely using encrypted file storage or cloud-based services.
An award-winning garage service in Northampton credits its success in part to the use of automated services in its garage business. They were able to improve productivity (time is of the essence in a fast-paced garage workshop!) and reduce costs. It also helped them streamline their finances, leading to positive business outcomes, including improved profits.
3. Prioritise Essential Expenses
Startups can greatly improve their financial health by prioritising essential expenses.
Every startup has a list of fixed costs that are not subject to change. This is part of your essential business expenses, which are first in line for consideration. In other words, they’re unavoidable and crucial for the functioning of your startup. For example, insurance, employee salaries, and loan repayments are all part of essential business costs.
Though not entirely unnecessary, variable costs are often not a top priority. For example, the costs of goods and services are prone to market fluctuations and will be easier to determine with time. However, prioritising essential expenses is a necessity. Doing this ensures that you’re investing your hard-earned money in important business goals like product development, marketing, and customer services.
Budgeting for essential expenses also makes room to account for one-off costs, which are often part and parcel of any startup business. Be it equipment repairs, software upgrades, or other seasonal needs, your startup will be in a better position to cover these expenses with a smart budget.
4. Build and Maintain a Contingency Fund
Contingency funds play the exact same role an emergency fund does for a personal budget, except in this case, it’s for your startup. Since many bootstrapped businesses struggle with funds, it’s helpful to have a lump sum amount allocated as a backup.
Unforeseen expenses can prove burdensome for a startup’s operational costs and your contingency fund works as a financial cushion for when things go south.
The role of contingency funds was especially relevant in the wake of Brexit and the pandemic that followed. These funds help startups remain financially stable during times of economic instability while also improving your business’s creditworthiness.
Ideally, these funds are supposed to be a lumpsum amount that covers at least three to six months’ worth of operational expenses. Many startups which survived this period credit their continuation to a yearly budgetary allocation of resources towards a contingency fund.
5. Regularly Review Your Budget
Your budget needs to stay flexible and adaptable to account for the ever-changing environment of the startup world. Monthly or quarterly reviews of your budget help you track your startup’s financial health. Regular reviewing and monitoring of budgets is a smart practice that aids in improving and refining your budgeting techniques.
Timely reviews allow you to make necessary adjustments to your budget for better performance on targets and other financial goals. For example, you can review items that are taking up a major chunk of expenses and see if cost-cutting measures will help bring those expenditures down. You can also reallocate your money to more important tasks and goals this way, ensuring your budget is aligned with your business goals.
Budgetary reviews help curb your expenses during an economic downturn, making your startup more feasible. It can also help you better invest and scale up when the market demands your product/service. This flexibility is an important aspect of smart budgeting and helps your startup thrive in a competitive and dynamic market.
Conclusion
The main goal of creating a smart budget for your startup is to ensure that your business has the financial resources to weather any unforeseen circumstances and thrive on a shoestring budget.
A lean and agile startup that understands the importance of effective budgeting has better chances at sustainable long-term growth and success.
We hope the above-discussed tips help you along your startup journey!
