Set Up and Maintain a Budget for Your Startup
The challenge many new business owners face is how to project expenses for your organization without any performance history to base those projections off of. Below we’ll help you discover five simple ways you can jumpstart your business with a budget that can grow with you so you can get to work faster.
This type of budget examines your net worth after whatever expenses you may have in initially setting up your business. Without a performance history, you can use your profit and loss statement to help determine how much you have to work with now as you prepare to move ahead.
1. Profit and Loss Statement
In the early stages, it could be simpler to identify your business’ fixed and variable costs without the added factors of sales and expenses. For example, are you planning on working out of your home? If so, first consider determining any additional, ongoing costs associated with working from home such as faster Internet or a new computer.
2. Determine Your Fixed and Variable Costs
If you prefer or need to work in a more traditional office space, factoring in the fixed costs of your expenses such as rent and utilities will be key in developing a well-thought-out business budget.
Identifying your variable costs could provide you with more room to work within your budget. Advertising, buying coffee for prospective clients, and similar expenses are variable. While nice and could have some long-term benefits, excluding these from your budget can be helpful to keep overhead expenses low when starting out.
As your company gets off the ground, including your projected profit into your initial budget can allow you to see where you can grow and cut back in certain areas of your expenses. Also, you can include these factors within your first quarter by projecting for your ideal profit scenario. If you want to cut out the guesswork in your budget, it’s simple to incorporate your incoming sales and profit into your startup budget. It could be important in this stage to also include a “break-even” point to calculate when you’re sales are meeting your expenses.
3. Project Your Sales & Profit
Now that you have a better sense of your fixed and variable costs as well as your profits, it should be clearer where you can make cuts in your budget. Take this time to see if you need to fixed expense goals such as employees to freelance or contractor work or perhaps it’s time to ramp up your advertising. Reexamining your budget for the next quarter can make your business more agile for the months ahead.
4. Determine Where You Can Make Cuts
Clearly knowing how much revenue is coming in and out of your business is paramount in growing and keeping it afloat. You can determine your cash flow generally by taking your monthly revenue and subtracting your total fixed and current variable costs to determine a total overall balance.
5. Create a Cash Flow Statement
Your cash flow statement is a living document, meaning it is expected to change month to month or quarter to quarter. Scaling your business can be simple with an initial budget of your expenses and growing it with your business. Using your budget to determine your cash flow statement could enable your startup more room when looking to grow your team and upgrade your equipment or systems.