When you’re starting out, one thing is for certain: you’ll need to budget. Whether you’ve grabbed a loan, landed outside investment or are going it alone, you’ll always need to have a good grip on your finances.
Your budget is an integral part of your business plan. We take a look at what you need to think about when planning your first budget, to help you stay in control.
How much?
One of the biggest questions when launching a new business is: how much can you spend? The saying goes that you have to speculate to accumulate, but every business is different. Whether big or small, try to set a limit on how much you’re willing to spend over a set period of time – six months; a year; two years, perhaps. This will help you set clear spending boundaries and put funding mechanisms in place. You can always alter this further down the line if things start to go better – or even worse – than originally planned. Remember that any loan will have to be paid back, along with any interest.
What do you need?
Think about the things you need to run your business. Depending on the type of business you are, the items will vary. Think about everything, from any licences and premises, to things like your computer and manufacturing costs - and even staffing. What can your business not survive without - and how much do those things cost? It’s always better to go into more detail, than less.
What do you want?
Now’s the time to think a bit bigger. If you are to truly make your business a success, what things could be a game-changer, and how much do they cost? Think about things like marketing, packaging and in-store environment. If you can afford them on your budget, great. If you can’t, it’s worth noting down costs now to see when you may be able to afford them further down the line. And don’t forget to think about how much you want to pay yourself. For both essential and non-essential costs, it’s important to note which ones are fixed and which ones are likely to be variable. For example, the rent on a property might be fixed for the next year, while the costs associated with your products might vary - depending on how many you produce.
Forecast your sales
You’ve had a look at outgoings, but also think about when money will start to roll in, and how much money you’re looking at. It’s normal to make a loss in the early days as start-ups try and make themselves known and put things in place. Make sure to do your research, look at competitors and identify any trends that you can try and jump on to enhance your income. Think about best-case and worst-case scenarios, as it’s likely your real figure will be somewhere in the middle.
Leave yourself some wiggle room
No matter how hard you plan, there’s always something that crops up. By leaving some room for manoeuvre in the budget, you’ll be able to flex to pay that bill or take up that good opportunity.
Make sure it all adds up
You might start some calculations on the back of an envelope, but thankfully technology can do a lot for us these days. You can download handy templates from spreadsheet providers like Microsoft Excel to get you started or even get help via some apps. Even if you’re good with numbers, you might want to think about getting everything verified by someone in the know. If you have a start-up mentor, they may be able to take a look over things or you may even want to run it all past a friendly accountant, as they may be able to tell you more about how things might affect what tax you pay. Take a look at our handy guide on allowable business expenses, too.
If you’re in the early stages of your start-up journey, download our business plan template to help you on your way.