Business owners have to tackle a couple of tasks when starting up a business, and one of them is creating a startup budget. A startup budget is an itemized list of the expected income and proposed expenses for a new business.
Considering that startups are going to operate for the first time, they may not accurately determine how much income they’ll make and the amount of money that’ll cater to all their expenses. Hence, there’s a need to create a progressive budget.
In most cases, a progressive budget is a kind of budget that can be consistently updated to accommodate new and necessary plans. Still not sure how it works? You can read more tips here.
Regardless, if you’re looking to create a progressive budget for your startup, the following steps will help you with one that’ll serve your business effectively:
1. Plan For Your First Day of Operation
Your startup will need to acquire many things as it goes into operation. However, certain things must be in place for you to open the doors to receive customers. You should ensure those materials take a high priority on your budget.
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Depending on your situation, you’ll need to budget for a facility—either to buy or lease. If you’re an online entrepreneur and don’t need a physical facility, you may need to budget the cost of hosting a website or any other platform on which you’ll operate. If you’re working from home, your budget may be to fix up a room in your home or a small area in your garage that’ll serve as an office.
Furthermore, on your first day, you’ll need fixed assets such as furniture, machinery, computers, and office supplies. Whatever you need to have a successful first day of operation must be prioritized on your budget.
2. Analyze Your Expenses
Businesses usually have two categories of expenses: fixed and variable. Fixed expenses are costs that don’t change and are not affected by your number of customers. That is, they remain the same irrespective of the number of customers you have. Examples of such expenses include rent, utilities, website services, advertising, and insurance.
Variable expenses, on the other hand, are those costs that change as the number of your customer’s changes. Examples are production costs, cost of raw materials, cost of packaging, and shipping products.
Depending on the nature of your business, you may have more of one category of expenses than the other, but you’ll surely have both. Nonetheless, while creating your budget, add your fixed expenses to your variable so you can have a good idea of your total expenses.
3. Estimate Your Monthly Sales
This can be a challenging task for a startup because you cannot guarantee how much sales you’ll make. However, you can still make some financial projections. Here are some ways to go about doing so:
- Create a best-case scenario where you prepare an estimate in a case where you make great sales.
- Create a worst-case scenario to evaluate the kind of income you could make when sales are low.
- Find a middle ground where you create your most realistic sales because not all sales will be collected—some of your customers will owe you.
Each of the projections informs your budget. With the middle-ground estimate, you can have a viable sales projection.
4. Include Interest and Taxes
If you plan to get a business loan, you should consider the interest you’ll pay on the loan into the budget. Also, it would help if you planned your tax expenses based on the state’s policy in which you’re running your business.
Different states have their tax policies. Therefore, you should properly look into the tax policies of your state and factor them into your budget plans.
5. Use Budgeting Apps and Software
An accounting software program can help you create your budget. All you’ll need to do is supply the necessary information, and it’ll produce your budget. If you cannot afford accounting software, you can improvise with a spreadsheet program to help keep your data organized in simple charts and graphs. Whatever technology you’re using, ensure it’s appropriate for your business.
A budget plays an essential role in the smooth and successful execution of your startup plans. If you aim to make a high impact with your startup funds, you should create a progressive budget that fits the needs of your business.
Beyond the startup stages, a progressive budget will serve your business needs as it becomes a tool for analyzing and evaluating the income, expenses, opportunities, and potential of your business.