How to Create a Startup Budget
Successful entrepreneurs know all too well that every dollar counts in the early stages of their business. However, only 54 percent of small businesses in the U.S. had a budget in 2021. Having a detailed and organized budget helps you be strategic with your spending and stay on track to achieve your goals. Here we will teach you how to create a startup budget that will allow your business to grow and succeed.
What steps should you follow when creating a startup budget?
According to an October 2020 survey conducted by Shopify, startup business owners spend an average of $40,000 in their first year. However, this amount varies significantly as every startup has different needs.
Budgeting for a small business startup can be overwhelming, but following these steps on how to do a startup budget for a small business can alleviate a lot of your stress.
5 Steps to Building a Startup Budget:
1. Choose a budgeting tool that works best for your business
Budgets do not need to be fancy, but they need to meet the needs of your company as it grows and evolves. Microsoft Excel or Google Sheets may be sufficient right now, but you may want to consider using a startup budget template or startup budgeting software.
2. Set a budgeting goal
Set a realistic budget goal to keep you on track and quickly separate your essential expenses from wish list items.
3. Categorize and tally your expenses
Separate your fixed costs and variable costs.
Fixed costs include more finite expenses such as rent/mortgage, payroll, and insurance. Variable costs have some ‘wiggle room’ and include things such as materials, marketing, transportation, and travel.
Now calculate your total. Remember that some costs may be one-time expenses and others may be recurring either monthly, quarterly, or annually.
4. Calculate your total revenue
As a startup, you may not have past sales to help forecast your revenue. For this reason, you should consider forming two sets of projections: One you hope for and the other more realistic. Potential sources of funding may include product or service sales, loans, savings, or investment income.
5. Compare your expenses and revenue
Have a detailed look at your expenses and compare them with your revenue. If your budget is far off from the goal you set in step # 2, decide which variable expenses you may not need at this point in time. These items can always be reintroduced as your revenue increases.
Startup costs to consider
Every startup business is different and therefore no budget will look the same. However, there are some common startup business costs that every entrepreneur should be aware of.
8 Budget Items to Consider
- Office or Workspace: Rent/mortgage, furniture, office supplies, utilities, internet etc.
- Equipment: Technology/Machinery
- Incorporation Fees
- Low-Cost Marketing
- Website: Development & Maintenance
- Payroll & Consulting Fees
- Emergency fund
If you are not confident with budgeting, the good news is you don’t have to navigate it alone. A full-service startup incubator can help you build and manage a budget that sets you up for success.
Contact Innovation Cluster Peterborough and the Kawarthas to get started!