How to Create Your Startup’s Budget

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Running a successful startup takes a great amount of effort, patience, and knowledge. This is why most startups start small with 69% of American entrepreneurs starting their businesses at home. One of the most important elements of any type of startup, whether starting at home or with a group of business associates, is having a good budget. A budget is a financial roadmap that can help you focus on your ultimate goal: running a successful enterprise. This means being able to produce quality products or services, establish a loyal client base, stay out of debt, and reach your financial goals. However, creating a budget may be overwhelming — especially to those developing their first startup venture. Fortunately, the process is simple and can be boiled down to a few steps.

Focus on day one

Hit the ground running by creating a budget for day one — the opening of your venture. The feature ‘How to Create a Business Startup Budget’ published by The Balance recommends including itemized lists in your budget for facilities cost, fixed assets, materials and supplies, and other costs. Facilities costs include office lease and space improvement expenses, while fixed assets include furniture and equipment. Materials and supplies, on the other hand, covers office supplies and advertising materials, and other costs can include local license permits and legal fees. By doing a cost-estimate of each item, you’ll have an accurate idea as to how much you’ll need for day one of your startup.

Plan ahead

Since a budget is a financial roadmap, extend your list to at least 12 months, and include categories such as rent, utilities, equipment, payroll, business services, marketing, and taxes. Make sure to put another column beside your estimates, where you can input the actual results for comparison later on. This way you’ll be able to see if you have adequate funds left for capital expenses, like upgrading your office or acquiring new equipment. You can make this task easier by using downloadable budgeting sheets from Docstoc and BetterBudgeting.

Establish a baseline budget

A baseline budget is an estimate of the initial costs you’ll need to get your business up and running for a specific period. Establishing this initial cost-estimate is vital for two reasons: First, it’ll let you know just how much you need to raise. Second, it can help you secure a business loan or win over investor support — regardless of how big or small it is. Despite it being a common perception, Chron outlines how the notion that banks and investors shy away from startups is false. Instead of looking at the final amount, banks and investors will be looking at signs that your venture will make more than what it’ll spend. A detailed, realistic, and well-organized budget will give them a good idea if that’ll be the case. Scrutinize the budgets of successful companies and learn how they manage and spread their funds. In doing so, you’ll be able to create the kind of budget that will give banks and investors confidence in your startup.

Estimate sales and profit

Your sales and profit estimates will dictate your projections for other expenses — but setting them up can be tricky. Start out with a ballpark figure of what you believe your startup can make monthly. Then, take into account factors that might affect this initial estimate, like an economic downturn or losing clients. This will invariably bring your initial estimates down, which you can also use to estimate your other costs, from rent to utilities and so on.

Monitor and adjust where necessary

A budget isn’t static, as internal and external circumstances can cause you to go over or under budget. That said, this article on ‘How to Make an Effective Budget’ by Marcus advises against making wholesale changes, especially after only a week or two. Instead, track your budget for a couple of months — which is enough time to spot trends that you can use as a guide in adjusting your numbers. If you’re going over budget in one category, re-allocate some funds from a category that is under budget.

Look to cut costs

Finally, check where you can cut down on your costs. You can scale down your marketing budget by taking advantage of marketing strategies that are either cost-efficient or free. An example would be embarking on a free email marketing campaign using MailChimp, which offers its service for free for companies with fewer than 2,000 subscribers. You can also contribute articles to magazines to position your brand as an authority in your industry and promote it at the same time.

Creating a good budget is the foundation of all startups. Use these tips so your startup is financially stable from day one.

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