Creating a startup budget is not only valuable but also an essential exercise for any startup. A budget is the key element of any startup business plan. There are various things a start-up needs to take care of right from Ideation to Implementation. Here are some of the essential steps to create a startup budget.
Think of it as a little voice that keeps you grounded and focused in the following ways:
- Ensures healthy cash flow to cover the first few months
- Helps you determine current and future cash requirements
- Gives you a reality check when you overspend
Now comes the million-dollar question – How do we create a foolproof startup budget?
Follow these 5 essential steps to create a startup budget that you’ll actually follow
SET YOUR BUDGET NUMBER
Before you begin, you need a number – a budget goal. This helps you set clear spending boundaries right from the start. In case you’re tempted to overspend, which is a likely situation, this magic number will bring you back to reality.
CLASSIFY YOUR STARTUP EXPENSES
To get your startup up and running, you will need to categorize the initial expenses: essential, non-essential, and later. Remember: The devil is in the details.
Quick Tip: Prioritize your essential items, and you have a higher chance of sticking to your budget.
HAVE A “LOSSES” NUMBER
You’ll go without making money for a while, and that’s the hard truth. But, you can prepare for it by calculating your monthly overheads and recurring expenses.
Remember: Estimate how long it will take you to break even.
ESTIMATE MONTHLY SALES
This is a tricky one. Why? Simply because there are no guarantees in life and business. The best way forward would be to have 3 sales projections – best case scenario, worse case scenario, and likely scenario, which is somewhere in between.
AIRBAG YOUR BUDGET
You’ve figured out your startup costs and losses. Now, it’s time to add that extra layer of protection to safeguard your budget. It’s almost impossible to follow your budget to the T. In any case, you need a safety net so you aren’t panicking or grappling with unforeseen or last minute expenses.
TIPS TO AIRBAG YOUR BUDGET:
- Increase your estimated costs by 10%
- Add 15% to your monthly operating costs
- Tighten your original budget if you can’t accommodate the ‘safety net percentages’.
SOS BUDGET TIPS:
If you find yourself in a situation where your budget is over the roof and you have some serious cost cutting to do, ask yourself some questions:
- Which costs can I do away with?
- Which essential costs can I tweak?
- Are there any creative ways to reduce certain essential costs?
And, if you can’t find the answers to those questions, here are some PARTING WORDS OF WISDOM:
Sometimes, nothing goes as planned, but that’s no reason to give up. If you feel that your budget planning is hitting a roadblock, reach out to other business owners for advice. There’s a whole community of startups out, so there’s a wealth of information at your disposal.
Must Read: Why Entrepreneurs and Startups Fail?