Getting a startup off the ground, or keeping it afloat until it’s profitable, can be capital-intensive. A recent Forbes study reveals that about ten percent of startups fail in their founding year, while nearly 70 percent of small business owners fold before the fifth year in business. There are various factors accounting for this trend.
But the financial component of startup management counts as a major hurdle for many business owners. For the most part, that’s why creating a budget to back your business idea is crucial. Here are a few tips on how to budget for a startup business.
Choose a Template
Budgeting is a mainstay among business professionals across all industries. The overarching aim of developing a budget for your business is to track its expenses. However, budgeting comes in various styles. Today, there are various budgeting templates available on the web. Choosing a suitable budgeting style is a matter of preference and ‘what works best for your company’.
Some budget templates may be simple. Others look sophisticated, spanning multiple sheets. Feel free to compare multiple options to make an informed choice.
Determine and Categorize Costs
Putting essential startup costs besides your income sources gives you enough context and an overview of your business’ financial status. There are various costs you can consider. Some are a must-add for every business, while others vary based on your business type and size. Fixed, variable, and material are all types of cost that you might see in your budget.
You can divide your budget’s cost component into two broad areas, capital costs listing large investments like land for your office, equipment, etc., and operation costs which focuses on costs that leaders incur to keep the company running. For example, if you’re planning to hire the services of an SEO agency like Keyword Performance, such costs are classed as operational.
Budgets may not be hard-and-fast documents, but the tighter your budget is, the fewer surprises you’ll experience as you kickstart your business. It’s crucial to treat this stage of your budget with thorough consideration, and don’t forget to budget for annual taxes.
List Income Sources
If you’re a prospective business manager, you may have a picture of how you think your product or company can make money. Budgeting makes the picture clearer by putting to paper your possible income sources. For this part of budgeting, you may need a sales team or expert to help you project your business’ revenue streams.
However, consider the best and worst-case scenarios when listing your business’ income sources and calculating the sales projections. This due diligence applies even when you’re a sole proprietor without a strong sales team you can fall on for your sales projections.
Estimate Your Cashflow
With your income sources and costs out of the way, you can now estimate your cash flow, comparing the amount of money you receive to your business losses over a specific period. These estimations can give you a fair idea of how much money and runway you’ll need to start your business. Generally, these steps should see you through a seamless budget preparation process.
But don’t forget to communicate your budget when it’s done. Budget communication is crucial, especially if you have co-founders and other stakeholders interested in your startup. It pays to run your budget by all these stakeholders so as to be transparent.
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