According to the Small Business Administration, microbusinesses can take as little as $2,000 to get started. Even the leanest small business needs a good budgeting system to thrive.
Steps in budgeting aren’t the same for startups as they are for established companies. If you are just getting started with your new business, check out these five steps to creating a budget.
1. Determine Startup Costs
When you’re first starting out, there are a lot of one-time expenses you will incur. For example, franchise owners commonly pay construction and renovation fees to alter a location to the brand’s requirements.
The cost of painting an office, installing carpets, and adding phone lines are all examples of setup expenses you can expect to pay as a one-time fee. To determine these costs, reach out to vendors for estimates on installation.
Three estimates are usually enough to help you determine the best price and value for the services you need. Don’t forget hard costs like desks and office furniture when considering your overall spend.
2. Research Fixed Costs
Fixed costs are the costs you should expect to pay every month to operate your business. For many home-based businesses, these costs only include utilities.
But most small businesses need things like payroll services to manage their employee salaries and taxes. These services allow employers to pay state and federal taxes on employees each quarter.
Create a spreadsheet of the expenses you will incur each month added a small amount for contingencies like increasing staff or broken equipment.
3. Estimate Variable Costs
Variable costs are expenses that fluctuate every month. These costs are harder to predict than other expenses.
Business owners often estimate these costs until they have enough financial statements to make a more accurate prediction. Variable costs can include shipping fees, certain licenses, and insurance.
These fees are often determined by external situations like a temporary increase in customers around the holidays or changes in local regulations.
4. Cost of Goods and Services
One area of the budget you can easily scale up or down is the cost of goods and services you provide. The amount you spend in this area depends on your long term business goals.
There is no right or wrong amount you should spend if you are compliant with local regulations. The cost to produce a product will vary based on other market factors.
5. Add Estimated Revenue
Revenue can be a challenge to determine when you’re first starting out. Market research is a good tool for learning how much revenue potential you have.
Assume that the first few years you’re in business will be slow. Conservative revenue projections allow you to avoid being unprepared when meeting your monthly expenses.
Established businesses can use sales history and product data to make accurate projections. For example, if you plan to roll out a new product in the coming year, this product price and estimated sales should be included in the budget.
Taking Steps in Budgeting Doesn’t Have to Be Hard
The most important steps in budgeting include research and planning. There are parts to your budget that can scale up or down depending on your financial position.
Scaling up can mean giving your business the chance to grow faster. Look at areas of your budget where you can move around money if funding is limited. Business owners who are financially creative might find they have ample opportunity to set their company up for future success.
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