How to Create a Startup Budget in 7 Easy Steps

A startup budget is crucial for new businesses as it puts in detail the use of capital to cover business costs. As the global business sector is improving rapidly due to technological advancement, many youngsters from different parts of the world are showing interest in opening their own business. However, opening a startup has become convenient and easy to manage digitally post-COVID-19 era.  Proper planning is inevitable when it comes to opening a startup. 

In most cases, a start-up business fails to sustain itself in the market due to poor planning and decision-making. Therefore, budget planning is something that all business enthusiasts must execute properly while opening a startup. Any flaws in the budget plan can lead the startup to a sharp downfall in no time. 

Create a Startup Budget in Easy Steps

Here are the 7 easy steps which you can apply to create the budget for your startup. It is always recommended to consult a business expert to carry out the finances properly in every sector. Also, you need to consider if the budget you are making is for a short or long duration. 

Step 1: Figure out a Target

If you made an initial plan for your business, like choosing the field and considering the services you will offer, make sure you figure out a target. This depends on the capital and the projected profit that you can earn from your business. 

Look for sample data of your competitors and study them to make your mock formulas.  It will give you confidence in opening the start-up and help you find out a unique way to handle it. 

While you figure out a specific target taking the finances into account, you can easily understand your business’s primary and secondary necessities. Always try to incorporate the primary necessities of your business as you start making profits. 

To make the target designing process easier, you can use tools such as MS Excel or Google Sheets as they can support financial planning. You can also use a paid accounting software for more enhancing results. 

However, as a startup owner, you might have to learn the software usage, which might be time-consuming. 

Step 2:  Analyze the Customer base for Income

Financial planning largely depends on the income of a startup business. As you develop a budget, you should have a clear knowledge about the sources of your income. These are nothing but the places from where you can expect a cash inflow. 

As you plan for your startup budget, consider the type of customers you would deal with. Moreover, you need to know the ways to deal with skilled employees.

While you analyze the income sources, you can easily understand the rate of conversions. Moreover, it can help you to place the prospects according to the regions. You may take the help of CRM software or get the break-even results. 

If your startup is already rolling and you have started incurring profit lately, form a marketing and sales team to quicken the process. You can start by hiring two persons for this team apart from your regular employees. There is no point in hiring a bunch of marketing experts early if you cannot afford them. 

Another thing you need to keep in mind is having control over the loans and savings of the company. This is a sector that you have in your direct supervision as the startup owner. Always consider it a favourable time to put money on new business ventures if the level of profit in your startup is high. 

Step 3: Divide costs and consider investing

This step connects well with the first step mentioned above. You might have sorted out your startup’s primary and secondary necessities already, and now it is time to invest. 

Always try making repeated analytical studies relating to finances before investing a lump sum amount of money in any sector for the sake of your startup. As you already know that the budget for a startup is of two kinds; try sticking to the long-term approach as it can keep your business going on comfortably. 

 

Step 4: Consider the Payroll

A major part of the startup budget should be used as the payroll. It would be best if you considered a specific percentage as payroll while running a business organization. Mind that it falls under the primary cost for running a business. You must always keep 30% of the total revenue as payroll in the case of service-related startups.

On the other hand, you can keep 10% to 20% revenue as payroll while dealing with a commodity-related industry. No matter what business you are in, always try to keep 15% to 25% of your revenue as payroll. This can always control the risk of using the profits of the business on the payroll.

Once you have done such planning, it is your responsibility to find skilled workers from the market. Try publishing ads on the online sites initially, but make sure you develop an HR team as your startup flourishes gradually.

There are a lot of organizations that can help you design the payroll structure for your SME. Always consider connecting to such an organization whenever necessary.

Step 5:  Make a note of the variable costs

There are some variable costs in every business. It would help if you kept those in mind. The variable costs in a business largely depend on production and profit.

Some major variable costs in the case of a business are as follows:

  • Utilities
  • Advertisement related expenses
  • Raw materials
  • Freelancer payments

One vital issue about the variable cost is its dynamic nature. It can change anytime, depending on the socio-economic condition of a place or country where the startup exists. The easiest way to track the variable costs is by maintaining proper tracking systems. The leading expense tracker apps can help you in this case.

Moreover, you can give your budget and finance team the responsibility to check if the variable cost is under control.

Step 6: Proper Debt Control and tax payments

If you are into a startup or planning to open one anytime soon, you might need to borrow a huge amount of money from the market as a loan. Once you take the loan, you have to clear the interest every month.

On the other hand, keeping a cash balance while being in a business can make you subject to interest income. Make sure you note everything on the budget plan and keep paying until the plan’s termination.

Failing to pay the taxes and interests on time can lead you to legal proceedings and you might end up failing to run the startup as a whole. Furthermore, if you have pre-existing debts, you must clear them accordingly with time.

A simple strategy to get rid of the problems discussed here is avoiding borrowing money from the market. The key to a clear budget plan for a startup is the absence of debt; however, it is next to impossible. All you can do is keep the amount of debt to a minimum.

Step 7:  Make timely balance sheets

While you are creating a startup budget for your new business, always remember to make balance sheets concerning all the income and expenditures in that period.

Balance sheets can help you observe the money flow in your company and make decisions accordingly.

Thus, the presence of a balance sheet can help you enhance the flexibility of your startup. There are mainly two approaches that you can take while making a balance sheet. You can either make it on a half-yearly basis or annually. Large organizations make their balance sheets every month and carry out auditing.

Remember being the supervisor of the auditing team while they carry out the process. You can also do it all by yourself if you have just started on with your business.

Final Words

Budget planning is crucial for any business, and you must concentrate on it before and after you have actively opened a startup. Try not to hesitate to use the technical support systems while planning the finances.

Choosing the right finance tracker app can be tricky, but you can choose one that fits your budget and serves all the features necessary. If you are a novice, try comparing the budget and features of multiple apps before signing a final deal with the right one.

Written by iED Team

Photos by:
https://aircfo.com/startup-budget-example/

 

 

 

 

 

Written by JUMP Team

16 August 2021

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