Each and most every new business owner will face the point where they have to come face to face with the task of tackling a budget for their company. A qualified expert in professional business coaching would stress to you that this is important in order to see the income you are making, your cash needs and your expenses. Your budget falls into a component within your business plan, your budget really is how you afford to complete and achieve everything you aspire to as a growing or established company. This is important as being a new business owner you won’t have any past information or the know how just yet, so you need to create a budget for the expenses and income. This is also more commonly referred to simply as a profit and loss statement. This will focus on your business and the product inventory, along with your service business but with no products. If the process of managing finances in a new business seems daunting and is scaring you away from pursuing this, consider business leadership coaching as a way to combat those insecurities or anything you are unsure of.
The first step is knowing what day one of your newly started business will encounter. These could be things such as; taking your website live, accepting customers and opening your doors for the first time. Your day one start up budget will get broken down into different categories, to help you minimise managing processes and handle things one step at a time. Breaking this process down into smaller parts will eventually show to be one of the best solutions for your business and the management of its growth. Not all categories will be the same, these will differ as some categories are not relevant to your type of business or the industry/sector your business operates or aligns itself with.
Attorney and accounting fees
Fees for the type of business
Monthly variable and fixed expenses
You need to be recording information for the fixed expenses that are considered to be a normal and consistent average each month. These are expenses that are not dependent on how many customers you have, and the amount doesn’t change each month.
Here are a few common fixed expenses business will have:
Rent of office
Business phone or Employee’s work phones
Monthly fees for credit card processing
Lease payments on equipment
Legal and accounting fees
Business loan payments
Now we look at the variable expenses of your business. These are the expenses that are determined by how many customers you work with or any new clients you achieve for that particular month:
Commissions on sales
Wholesale pricing on goods that are being re-sold
Shipping and packaging costs
Wages for any potential overtime completed
Monthly sales can be the hardest to budget because you have no idea what sales will be made. Although once more and more leads come through, you may be able to develop a sense or feeling of projected sales, all depending on how experienced you become.
There are three sales projections to look at:
Likely scenario sits in between the best and worst scenario and is the one you should explain to your Lenders, investors and any trust advisor. Best case scenario, this is the most helpful estimate for the first year of your new company. Worst case scenario, this is the least hopeful and done with very few sales within the first six months.
Calculations of collections
Ok, so you need to be realistic and must assume that not every sale will be collected on time, prior to the month or after it. It will depend on the type of business that you have as to which way your customers are paying, this will determine the percentage of collections. You have to let clients know early of the specifics in regards to payment; date needed, amount and any guidelines. Having this conversation in the introduction process with new clients will ensure that they are aware of the expectations and allow for you to make sure you and your company are getting paid the right amount on the correct date.
Tips for Creating Your Business Start-up Budget
It is a good idea to use an accounting or management software program for the budget. This allows you to make changes and use existing accounts. If this doesn’t suit you or you think you can find other options that prove to be better, there is the option of using a spreadsheet which people find easier to use. Don’t include your taxes in either the variable or fixed expenses as you won’t know what taxes you have until you calculate the net income. You can add these to a separate section. Estimate having your sales low and the expense high. It will take a long time to get sales going so be patient and remember overestimating is always better than underestimating.
Budgeting isn’t something that is terribly difficult once you get your head wrapped around it. Whether you are budgeting money for saving for a house renovation, budgeting for a holiday or trying to save a little bit of cash on your next monthly electricity or water bill, budgeting can be made simple if you make the process as simple as possible.