Creating a budget is among the most important tasks new business owners must tackle. A budget can help track your startup needs and expenses against expected income. As a new business owner, it can be overwhelming to plan together as you don’t have any previous information to base your figures on. Today, we will talk about the steps of creating a budget for startups so you can estimate costs correctly from the get-go and stay in the black from the first day.
Plan for the First Day of Your Business
Start by determining what you’ll need to open your doors and welcome customers. Some things to consider include in your startup budget are:
- Costs of Facilities – This includes the cost of setting up your physical office location or warehouse. Are you buying a building or leasing a location? Is your business strictly e-commerce and physical facilities not needed?
- Fixed Assets/Capital Expenditures – This includes costs for furniture, vehicles, and/or equipment needed to start the business. Machinery and computers fall into this category.
- Materials & Supplies – Think office supplies, shipping supplies, and marketing materials.
- Other Costs- Licenses, permits, insurance, and legal fees all fall into this catch-all category. Be sure to research free or low-cost business tools to help you get ahead of the competition
Estimate Monthly Expenses
Monthly expenses are either fixed, meaning they don’t change from month to month, or are dependent on the number of clients you have. Rent, office supplies, website service fees, and insurance are prime examples. Variable expenses change depending on incoming orders. These can include raw materials, sales commissions, and the cost of production. Individuals with a service-focused business can count on fewer variable expenses.
Estimate Monthly Sales
This is the most difficult part of a startup budget since you don’t know your new company’s sales history. We advise individuals to make three different projections:
- Best Case Scenario
- Worst Case Scenario
- Likely Scenario
Individuals should assume they won’t earn all sales the first try or even within the first year. Your business type and the way customers pay affect its sales and when the revenue is recognized. One should include a collection percentage along with their sales estimate every month. For example, if your sales estimate is $50,000 with a collection percentage of 80%, your cash for the month will be $40,000.
Design a Cash Flow Statement
Cash flow is the money that goes in and out of your business every month. One should manage their cash flow to keep their new business afloat. Start this statement by combining total costs and total income every month. Your monthly cash flow statement should include income from monthly sales, collection percentages, total fixed costs, total variable costs, and total cash balances.
To conclude, creating a startup budget is a bit complicated. However, the task is not impossible. Be sure to research your business type and have a solid understanding of what’s needed to open your doors and keep the business operational. A major hurdle for some high-risk businesses is obtaining a way to accept electronic payments from customers. Since 2010, Payment Savvy has cultivated strong relationships to quickly and easily get startup businesses up and running with an advanced payment platform. Please sure to connect with our knowledgeable team to learn how we can help your startup business dreams come true!