9 Steps To Budgeting For A New Startup


So, you’re thinking about starting a new business? Congratulations! Welcome to the exciting life of an entrepreneur. It’s fast paced, thrilling, and there’s always something new around the corner. I’m sure you’ve got hundreds of creative ideas, and you can’t wait to get started.

However, it’s time to slow down a second and think carefully. Starting a business is all about exploring your passions and doing something you believe in. However, business is also about balancing the head and the heart. At the core of any business is a logical, reliable financial plan. No matter what business you’re in, it lives or dies by the balance sheet.

With that in mind, load up your spreadsheets, and let’s start tightening up those numbers. Unfortunately, most startups fail within the first two years. The reason for this is simple: poor budgeting. Starting out without enough cash and without a clear plan is a path to disaster. So, here’s how you budget your new business correctly.

9 Steps To Budgeting For A New Startup

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  1. Market research

It all starts with clear market research. You’ve got to understand the market that exists around you. First of all, take a look at your competitors. How much are they selling their products for? How much are they spending on manufacture and how much advertising are they putting out? By answering these questions, you’ll figure out what you need to do to compete. And that will form the basis of your budgeting. Secondly, do your customer research. Use a focus group of your target audience to find out how much they’re willing to pay for your proposed product.

  1. Draw up your operational expectations

The next thing that will dictate your costs is your operational capacity. This is a realistic allocation of time and resources that should outline your day-to-day business. For example, a new restaurant knows that it will have busy periods over lunch and dinner. However, they can account for a lull between those two periods where revenue is lower. Look to factor in downtime and low traffic. Make realistic predictions about how much money you can bring in each day.

9 Steps To Budgeting For A New Startup

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  1. List your startup essentials

Next, it’s time to make a list of all the things you need to get off the ground. For some businesses, that’s a longer list than others. What technology, equipment, and tools do you need right away? For example, starting a restaurant requires a huge amount of equipment and resources. You’ll need a premises and all the kitchen equipment. You’ll need furniture, linens, and utensils. You’ll also need a chef and waiting staff. This is far more expensive than, say, a consultant. A consultant simply needs a website and a computer. Make a list of your startup essentials, and cost them realistically.

  1. Get real quotes

While you’re budgeting your startup costs, don’t guess at the figures. You’ll inevitably underestimate the exact costs in the hope of bringing the budget down. Face up to the truth immediately by getting real quotes. Call up suppliers and find out exactly how much you’ll pay for the items on your startup list. Ideally, you should call three or four suppliers for each item. That way, you’ll create an average quote.

  1. Fees and ongoing costs

In business, there are two categories of business costs. The first is called assets, and it’s all the things we listed above. In other words, they are the ‘things’ your business needs to buy. They are objects and equipments.  The second category is ‘expenses’. These are the ongoing costs of running your business. They include everything from rental payments to fees for financial eSeller services. Expenses also include wages and any other regular operational costs. You’ll often need to speculate the costs here, so be sure to over-estimate, just in case.

9 Steps To Budgeting For A New Startup

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  1. Factor in slack

By now, you should have a good understanding of your operational expectations. That should tell you roughly how much money you’ll bring in over the coming months. It gives you a good basis for predicting your revenue stream. It also helps you identify when you’ll break even and become profitable. However, you must also factor in a degree of slack here. Not every business becomes profitable exactly when expected. There may be unintentional downtime or slow business growth. For that reason, set aside some additional money to cover this potential problem.

  1. Factor in emergencies

As well as ‘slack’ or unpredictable downtime, you’ll also stumble across emergencies. In fact, much of the entrepreneur’s job in the early days is fighting fires. Things will come up on a daily basis that challenge and surprise you! Some of these things cost money to fix and amend. What if your equipment breaks and needs replacing? What if the internet system fails and you need to bring in an expert? There are all sorts of unpredictable emergencies that could strike at any time. Keep a second pot aside to help cover anything that you cannot predict.

  1. Look at where you can cut costs

This early stage of business is the perfect time to begin trimming down the fat. Often, entrepreneurs dive head first into the business. They suddenly realise that their cost of operations is simply too high, and they start cutting costs. They make redundancies, restructure the business, and even start pursuing more investment.  It’s a common formula, and we see it happen all the time. You can avoid this by taking the extra time before you start the business. Look through your proposed budget, and see where you can cut costs now. It will save you a huge headache in the long run.

  1. Review the budget regularly

Lastly, don’t forget to review the budget at regular intervals. Once the business has begun ticking over, revisit your operational expectations. Are you underperforming or overperforming compares to your initial plan? At this point, you can alter the numbers accordingly. Checking and updating the budget regularly will help you stay on track.

That’s all for now, folks. Now you’re ready to build a concrete budget and business plan for your new company. Best of luck with your new venture!

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