Creating a Business Budget for a Startup
Creating a business budget is one of the most important tasks you’ll face as you launch your Startup. For the Non-Accountant this particular action item can be intimidating to the point of procrastination. More often than not, Startup owners establish a business based on their passion for their trade, if that trade falls outside of finance chances are budgeting skills aren’t a strength. Fortunately there is hope and a number of resources that provide support. Before putting off the inevitable any longer, it’s time to face the challenge head on.
The key to crafting a unique business budget is creating a realistic picture of your Startup. You want to make solid business decisions that make a positive impact, having a clear picture to start will deliver realistic results. If you’re looking for outside investors or seeking a loan from a financial institution presenting a realistic picture increases your chances of success. Their decision will be based on your ability to present the picture of opportunity developed from solid, well-researched data.
There are some general principles non-accountant business owners can follow that will help with the step-by-step process and developing the right mindset that leads you to a realistic business budget that will serve your Startup. As you read through the principles listed below, you’ll find that creating a realistic business budget is making time, developing focus and investing effort.
Focus on what you can Prove, Not What You Think
When starting a business it’s okay to anticipate you’ll become successful quickly but when creating your business budget avoid elevating the numbers of expected profit based on what you think will. Each line item must be supported by solid data that justifies the result you anticipate. Often Startup owners will direct attention to potential of the product or service within their marketplace. Outside investors or lenders will see a weak picture that does not have potential for profit, which lowers your chances of successfully obtaining their investment. If you’re simply looking to grow your business without investments, it’s impossible to maximize your opportunity with data compiled from the unknown.
Ensure that every Line-Item has a Reference
Your budget should be based on real numbers you obtained through real research. As you present your business case, make sure the scenarios you provide can be calculated on real facts. If you aren’t sure about certain estimations, do the legwork to get as close as you can. For example, if the expense involves a third-party it’s best to give them a call and ask questions. If you find yourself starting to focus on ‘why’ you anticipate customers will come to you, chances are you’re presenting a weak case and lowering your chances of success. It’s impossible to build a business budget with too much detail, but those details must be based on facts and figures. You’re not presenting a pipe-dream, you’re presenting a real business with real potential.
Have confidence in your future, Your Mistakes are In the Past
If this isn’t your first venture, don’t let previous mistakes influence your future. Tell yourself this is a fresh start and believe it. Everyone makes mistakes and sometimes it takes a lot of big mistakes to reach success. So many experienced professionals had the training and knowledge to launch a successful business from day 1, but they still made mistakes within a short time of launching their business. As you work through your anticipated expenses and income for the next year have confidence in yourself. Accept your previous experience happened in the past and move on with confidence. The positive mindset will be reflected.
Be Rational with Income, Cut Back Where Possible
Play it safe and anticipate you will make less than you initially planned. The first year is always the most difficult for any Startup. Your Business Budget is based on research, which delivered a realistic picture but your business has no historical data or proven track record of success. Many businesses fail within the first year and often it’s due to business owners who fail to anticipate roadblocks that require spending more and profiting less. It’s not realistic to think you can wait until times are tough to reach out to investors or lending institutions for help, more than likely they’ll turn you down. As you create your business budget, anticipating roadblocks and budgeting for the expense could be the one action that saves your business from failing.
Be rational on expenses
Just as you anticipated a lower income, it’s a good practice to anticipate and set aside funds for increased expenses. It’s impossible to anticipate the exact cost of every expense and no matter how hard you it’s likely you’ll have missed or underestimated an expense or two. In the long run, anticipating the increased expense will ensure you’re prepared for the inevitable.
As your Startup continues to grow and profit, you’ll be thankful your business budget was created from a realistic point of view. You can feel confident with each decision that you’ve made the right choice and have the tools you need to maximize your potential. Solid business decisions lead to success and implementing a realistic process from day 1 creates the environment for success.