When it comes to starting up a business, every cent counts. Quite literally.
Did you know that the majority of business owners in the United States start off with a working capital of less than $50,000? That sounds a lot, but if you consider what is needed in order to launch a business and keep it afloat until it begins to make a profit, that is not a lot at all. Some have even less – the popularity of aggressive growth-hacking practices means that many start-ups are trying to get going with the smallest amount of money possible.
This is why having a solid business budget in place is vital.
The problem is that creating one can be more than a little overwhelming. Even the terminology – forecasting, budgeting, capital – can make even the savviest of would-be business owners want to run for the hills. Here, we will take a look at how you can start a business budget that allows you to maintain complete control over your business finances.
What Startup Costs Do You Have?
Startup costs are the expenses and assets purchased prior to the launch of your business. These are the key purchases—the resources you must have in order to launch your company and begin operating. You will need to think about two different kinds of startup costs: assets, which, are one-time purchases of both liquid and non-liquid assets such as inventory, computers, furniture, vehicles, real estate, and security deposits. Remember that startup assets, also known as capital expenditures, are not tax-deductible and expenses, which are fixed or variable costs incurred prior to launching. These might include things like payroll and rent and are tax-deductible.
What Fixed Costs Do You Have?
The next step is to calculate your fixed costs, also referred to as overhead costs. These are business expenses that are largely consistent month after month. These may include:
- Mortgage or rent
- Website costs
- Internet and phone
- Professional services such as employee financial counseling
- Bank fees
What Variable Costs Do You Have?
Variable expenses fluctuate in response to your sales and production, so they rarely have a fixed monthly cost. These costs generally rise as you scale up, and vice versa. These may include:
- Advertising and marketing
- Raw materials
- Utility bills
- Income tax
- Events and networking
- Freelance services
Calculate Your Revenue
Following that, you must forecast your earnings for each type of income source. Without previous sales data for your company, it’s important to make at least two sets of revenue projections: optimistic and conservative.
Estimate how frequently your customer personas will buy your product or service. Consider your target market, potential market share, and other factors such as the current market conditions.
Tally Up Final Costs and Adapt Accordingly
In your business budget template, enter your monthly cost estimates and calculate how much you’ll need to get started. Hopefully, you’ve budgeted for overspending and an emergency fund.
In the early months of a new business, it is normal to expect some deficit spending. However, if your budget goal sounded significantly better on paper, you can make changes before borrowing more money.