How to Set Up and Maintain a Budget for Your Startup

Keep it real. We say that a lot at Smart RealTime but especially when it comes to start-up budgets! Creating and following a realistic budget for your start-up is essential. A good budget helps you see how much money is required to break even, and helps you pinpoint essential vs non-essential spending. Enabling you to forecast and manage your cash flow, it’s not everyone’s favourite task but this guide is here to make a start-up budget easy by breaking it down into four simple steps.

1. Calculate Your Costs
What will it realistically take for you to spend before you start making any money. You must work out how much you’ll need to launch your business for example setting up a website. You can generally group your costs into three main categories:

  • Facilities: where will you be based? Market research will help give you an estimate of how much the rent or mortgage will set you back. However, the costs don’t always end there. You might need to remodel your chosen location to fit the needs of your business.
  • Capital Expenditure: how much does it cost to keep those facilities running? This is how much money you’ll need to maintain and improve your facilities. Office furniture, equipment and decorations all fall under this category.
  • Materials and Supplies: what do you need to buy to keep selling! These are the items you’ll need to use in order to run your business, such as ingredients for a restaurant or beauty products for a salon.

Top Tip – Don’t forget the small costs count too, and they certainly all add up.

2. Calculate your Monthly Expenses
Firstly, what are monthly expenses? These are the costs associated with the items and services needed to run your business. Again these can be broken down in to different categories:

  • Fixed expenses stay the same each month. Examples of fixed expenses include rent, internet packages, subscriptions and insurance.
  • Variables are more difficult to predict as they change in line with your volume of sales. Supplies, shipping costs and raw materials are all variable expenses.
  • Semi-variables are fixed costs which can become variable if production volume dramatically increases or decreases. A surge in demand might require you to pay your staff overtime or result in a higher electricity bill than usual.
  • One-time expenses are often unforeseen costs such as equipment repairs, but also might account for planned events such as business conferences.

3. Forecast your revenue
Before you get going, have you done your research? How do similar businesses charge and how much do they bring in on average? It’s difficult to forecast what you’ll actually earn during your first few months in business. Things will fluctuate, and get soe professional advice via an accountant or financial consultant, they might be able to offer some valuable insight.

Could you implement retainer contracts and or use seasonal trends to help you estimate revenue? The best thing we can say initially is play safe so you don’t overspend by being over-optimistic.

4. Keep checking the Cash Flow!
You won’t always be able to collect money for your goods and services straight away, which can lead to cash flow issues despite profits looking healthy. Bills have to come out if you don’t have money set aside things can start to spiral.

Set aside some business savings for times when the cash flow slows down. With careful monitoring you’ll soon see patterns across the year which will help you budget for the next year.

Careful budgeting allows you to make prudent financial decisions and keeps your start-up on track for financial success. Always forecast conservatively and be very meticulous about your spending!