If you are tired of your 9 to 5 job with minimal benefits and dream of investing in your own startup, this article will help you achieve that vision. The first step towards launching a successful startup is a wisely drafted startup budget.
Planning a budget is a life skill that anyone can easily learn without any formal training. However, it requires thorough research so you can take the right steps to monitor your cash flow from the beginning. Our guide to creating a successful startup budget will help you lay down a sturdy foundation for the rest of your start-up.
Let us take you through some bookkeeping basics before we proceed any further.
Keep a separate bank account for your personal finances, which is not connected with your business finances in any way. For one, this will prevent any future confusion over what has been spent where. Plus, this will ensure transparency between you and the other people involved, such as your business partners.
Being old school has its charm, but not where bookkeeping is involved. Saving your data on the cloud prevents you from losing it under any circumstance. We recommend sifting through various bookkeeping software to see which one seems most user-friendly to you.
This tip is pretty useful for any business, especially if you have an accountant or finance manager working in your stead. Go over the books every month to ensure that the figures match up and your budget is in good shape. Once every four months, it is best to take a thorough look through the financial records. Your financial data may show you some trends, such as growing or declining profits or rising expenses during a certain season, that will help you make better decisions for your business. A half-yearly or annual review may tell you even better stories to incorporate in your startup.
Plan ahead by keeping up with the tax calendar and paying your taxes on time. Rather than being caught short, this is the best way to manage payments and keep your peace of mind during the stressful tax season.
Now that we have covered these basics, let’s begin with some crucial steps to help you plan your startup budget.
When you set a target budget, you prevent yourself from spending more than you can afford. If as a startup company, you don’t know what the expenditure limit is, you are bound to overspend and end up in deep financial trouble.
This is easily avoidable if the primary rule of your startup budget is to decide on an upper limit. You must know how much you are willing to or can afford to spend on business development over the year.
You can also take the option of choosing from various templates available online and see if any of those work for you. We also recommend trying reliable budgeting applications because they record your budget and can update it without you having to do it manually.
Once you have a startup budget goal, it will be much easier to sort through necessary and unnecessary expenses to separate them. You can stay on target while you work on other aspects of startup budgeting.
Once you have settled on the maximum limit of your expenditure, your startup budget will be ready for the next step. You must decide if you are going to invest in a product, pay for office space, and whether or not your employees will be salaried.
When you think about these elements, you can better decipher the needs of your startup budget allocation, so you can focus on the various areas. Research by reading more on the usual expenses of starting a business.
These can include startup assets such as one-time purchases, which include personal computers, air conditioners, conveyance vehicles, and property. These are considered to be company assets with tax payable. There are also continuous expenses such as paying rent, employee salaries, and investment in advertising or paying for marketing services.
Instead of calculating these costs together, resulting in an overwhelming expenditure, break them down, so you know how much each costs. This will help you monitor it closely. You will know where your money is being spent and scrutinize every aspect of the budget. It also helps if you compare the prices different services offer so you know if you are getting a good deal.
There are two types of costs you should know about when creating an annual startup budget. List the costs that remain the same on average each month. These are known as fixed costs and include the rent of your office, your payroll, phone and internet bills, insurance, and other services.
Secondly, note down the constantly changing or variable costs of running a business. These include bills for utilities, transport costs, raw materials, income tax, advertising, or other services you may have to hire. To calculate exactly how variable these costs are, you will have to monitor them carefully. In a few months, you will have an average figure for each area of expenditure.
This is helpful for you to understand where and when the costs are higher so you can predict them and act accordingly.
It is common knowledge that a new business does not yield profit for up to six months, which should not worry or discourage you. Though your earnings will not exceed your initial investment immediately, your growth will build upon your revenue, given time.
Draft a forecast that shows what your earnings look like in the future, based on the preceding months. Creating an optimistic and worst-case scenario projection will help prepare you for both.
When faced with a projected worst-case scenario, you will have a contingency plan in place to pay your employees, rent, and other bills without falling into debt.
A crucial part of planning a startup budget is editing and adapting the budget to your needs. The same startup budget that worked for you six months ago might not be feasible now. There is always a chance that you overspend or run into an emergency that depletes your funds.
Matching your startup budget to your current needs is a great way to ensure that your spending remains up-to-date with your business. If it consistently feels like your startup budget does not match with your spending, it may be time to adapt it better.
Return to your startup budget and see if you can reduce, save, or eliminate costs that are weighing heavy on your pocket. With enough trial and error, you will reach your budgeting goals and lead your business to success.
Working on an Excel Sheet or a budgeting app helps you save your time and ensures an error-free input for your budget. Moreover, your startup budget will be easily modifiable with options to label and differentiate between items and be stored in one place, so you have easy access to it.
Here is an example of what your annual budget could look like:
Source: Wall Street Mojo
Diligent bookkeeping is crucial for a startup but is also a time-consuming and distracting task. Hiring a professional bookkeeping service like Monily makes a big difference for small businesses. This financial management service provider offers a dedicated bookkeeper for your business account along with monthly financial reports, cash flow projections, and sales tax preparation.
Moreover, there will be no more worrying about expenditures not being recorded properly. Monily makes sure that all bank and credit card purchases are recorded in your business ledger!
Whether you have just started your business or have been at it for a while, budgeting is an essential part of financial bookkeeping. In fact, without an annual startup budget, it is near impossible to be organized and on track.