Many business owners find themselves falling flat in the first few years because of one of the most common problems with start up companies: failure to budget money for the start up process appropriately. Perhaps this is due to having an overly optimistic view of the future; the start up process always seems to cost more than you initially expect. Preparing a start up budget can be intimidating, for even the most fearless and confident. Remember Murphy’s Law, “whatever can happen will happen,” when you are budgeting for your start up process. But if you take the time to budget appropriately, you save yourself hours, even days, of angst and frustration in the future. Remember that a good budget is no guarantee of future fiscal success; but, the budgeting process can help make realistic projections about how and when you may be able to achieve financial goals for your start up.
If you haven’t understood the point clearly yet, for repetition sake, remember that the lesson to be learned from most failures of small business ventures is that it is extremely important to take the time to make a realistic budget to determine how much money you need to start your new business. There are two main tactics to consider when budgeting for your start up process:
1.When you estimate your costs, build in some cushion and pad the numbers a bit.
2.Change your estimates every time something costs more than you estimated.
Even differences of $20-40 per month can add up in the long run, and has the potential to set planning on its ear, especially if the small business owner decides to make that more costly change in more than one area.
Step 1:
Make a comprehensive list of start up costs for your business. Consider the following items:
Market and Competitor research
Identity packages and promotional activities
Tangible assets like furniture and fixtures, inventory and supplies
Support fees for legal, accounting, or other advisement
Equipment
Computer hardware and software
Communications tools
Shipping – packaging, distribution, and delivery
Product or service design and testing
Sales programs
Step 2:
Look at how much it costs to actually run the business for a few months. Monthly operating budgets are a good way to estimate how much money will be flowing out of the business. Consider the following items:
Salaries
Benefits
Taxes
Lease/rental payments
Utilities and telephone
Loan payments
Professional fees (legal or accounting)
Cost of inventory/supplies
Consider making a family budget, examining both fixed and variable expenses. Knowing your own personal costs will help you understand how much you need not only to support the business, but how to support yourself during the start up process. Also, don’t just look at the cost of setting up and running the business, but also examine potential cash flow peaks and valleys, especially with seasonal businesses. Finally, look at ways to limit your costs in every area possible, and try to cushion your fall for when the unexpected happens.
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