Budgeting for your business is a step that every serious entrepreneur observes. Having a blue print of your anticipated business expenditure cannot be overemphasized especially when starting up. The most effective financial budget includes both a short term, month-to-month plan for at least a financial year and a long term, quarter-to-quarter plan of at least three years that you use for financial statement reporting. In the startup phase, you will have to make reasonable projections about your business expenditure in establishing your budget.
This means that you will essentially look at factors such as: annual earnings, sales in the following years, price of products and services, operating expenses, number of employees needed, income tax rate, fixed assets, payment terms and options for clients and customers, loans that the business may need to take, collateral and interest etc. All these should be captured in the budget for a startup as they have huge impact on the day to day operations of the business and its progress in the coming years.
As for the actual preparation of the budget, you can create it manually or with the budgeting function that comes with most bookkeeping software packages. You can also purchase separate budgeting software such as Quicken or Microsoft Money this may seem like a lot of information to forecast, but it’s not as cumbersome as it looks.
The following tips can guide one on the budget making process for a startup:
1. Spending assets.
This includes the things you need to use in your business over the long term. For example a graphic artist might need specialized printers and a drafting board, among other things. A record label owner will need recording equipment. All of these items make up your starting assets. For every item on this list, make an educated guess of what the amount of expense will be. If you can’t estimate the price for an item off the top of your head then do some research. For instance, call real estate agents to inquire about rental space and prices. Contact insurance brokers to ask about insurance plans and prices.
2. Operating Expenses
These refer to the day to day costs that will be incurred as a result of running the business. Make assumptions on such expenses in order to know the amounts spent per day or even per month. They include expenses such as salaries, rent, business licenses, stationery etc
3. Liability
This refer to what the business owes its creditors, investors etc. For this, break down each bank loan separately. Do the same for the stockholders’ equity—common stock, preferred stock, paid-in-capital, treasury stock, and retained earnings. This will help you keep track of borrowing culture.
4. Profits
The essence of any business operation is to make profit. Therefore it is important to list the projected profits that the business is likely to make should it stick to its business plan. The profits projected should be reasonable. This will keep the investors and the entrepreneur focused on the business goals as they will aim to achieve the targeted profits.
The main aim of a budget is to guide the business in its expenditure therefore anything that will incur costs should be captured in the startup budget. This budget is however subject to change as the entrepreneur may adjust it to suit the prevailing conditions of business.
