Talking to several startup founders it emerges that the conception of the actual business idea was couched with hopes of making it big in the business world. You know the rags to riches type of thing we always envision. However, an overview of the life cycle of many startups reveals that more often than not they often hit a snag in their growth trajectory. Prominent among the challenges faced by these respective startups relates to their ability to formulate and abide by strict startup budget. Quite often, more money is spent on building the image of a big company before the idea even takes off the ground. I thus found it proper to share some quick advice suggesting some of the possible ways in which founders can attempt to have realistic and manageable starting budgets.
What Is A Startup Budget
Put simply, a startup budget is merely a breakdown of how capital will be used as one commences on implanting his/her idea. Such a breakdown of expenditures proves to be the most efficient way to help determine how the business idea will sail through in the first phases of business. This could be a matter of months or weeks and the extent of such a breakdown will span so far as you correctly envision the growth journey of your business. There is no doubting the fact that coming up with the necessary budget requirements and expenditures is determined by the extent of your prior research spanning both the industry and markets. Through research allows for one to find means and ways to avoid unnecessary costs in the startup phase and this helps one guard against running out of working capital too early on in the business.
Planning Is Key
Now that you know what a startup budget is, there is no denying the fact that planning is essential in coming up with a most efficient and effective budget. Hence, in the planning process, you might want to secure a budgeting or accounting software such as Microsoft Excel, in which you will be able to create and monitor such things as budgeting goals and maximum expenditures. This will help you immensely as you tally out on what you must have as wells as performing calculations between revenue and expenses incurred in your business.
In your plan, you should bear in mind that assets can be viewed as purchases for your businesses which contribute to cash flow generation. These could be your inventory, machinery, vehicles computers and office furniture. Whereas expenses, which can either be fixed or variable, include but are not limited to rent and payrolls. These are sometimes called overhead expenditures. Recently, there has been a buzz about securing patents and trademark rights from the onset of the business. You should be aware of some ideas which, although successful today, have their origins pinned down on a losing someone. So, depending on the nature of your idea and business you might want to factor in costs relating to patents and other such regulations. When planning, it is essential, therefore that you break down each expense where possible. And also bear in mind that there are some expenditures which will be paid in parts hence you might want to pay an oversight to these as it might help you to even out your cash outflow as you start.
Always Determine your Fixed Costs
To every business, there always will be fixed costs and you do not want to miss such costs in your budgeting exercise. As the name suggests, fixed costs are those costs that will remain constant throughout the business. This could be tricky given the inflationary environment characterising the Zimbabwean economy to a degree that it may be difficult to ascertain how exactly your fixed costs will be structured. However, this does not demean the relevance of picking out your fixed costs. For a digital company, fixed costs can cover internet and phone services as well as website hosting and maintenance, payroll and banking fees. It is also worth noting that certain fixed costs always come with expenditures relating to each of it such as internet charges also require that there be electricity which is another cost on its own.
Project Your Variable Costs
Second, to fixed costs come variable cost and these comprise of expenditures with various monthly costs which you will incur in the course of your business. Such costs usually relate to the cost of raw materials, freelance services, marketing and advertising, transportation as well as other utilities but the list goes on. Now, what you want to do is generate working averages of such variable expenditures to the extent that one can categorise the stages of his/her business. In this regard, it is worth noting that variable expenses will increase or decrease in response to the production and sales capacity of your business.
Perform A Revenue Projections
Having known of expenditures associated with your business, what you want to do next is formulate a revenue projection for your business. You can be guided by thoughts of how much you intend to be earning from your business per cycle. Projections can be guarded by findings from your research where the assumption is you should have obtained information on general profit margins and the market potentials associated with your business. Use that data to make your revenue projections.
Close It All Up
At the end of this, you should be having a rough idea of how much you intend to spend in your startup and how much you will be earning. Your projected profit margins should also be reflecting and if you are not happy with them you can always adjust the budget and try to stick only to the necessary. However, you should note that having a thorough budget is halfway solving the business financing challenge, sticking to it is more of a personal trait varying among startup founders.