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Effective Budgeting for Start-up Businesses

Written by: Carrie Langstroth

Article Overview: It really isn’t that difficult to make budget for your small business once you have charted out your goals and the path your business is most likely to take, say, in the next 5-10 years. Think long term first, then concentrate on short term ends and go on to compile a concise, but accommodating budget that could serve as one of the cornerstones of your new business.

Effective Budgeting for Start-up Businesses

So you have decided to start your own small scale venture and are wary about facing the gargantuan task of compiling a budget? Here are a few pointers that could help you fortify your business in the long run:

• § Finalize your company goals, objectives, philosophy and the nature of the business you are looking to set up. Unless you know what you have set out to achieve, your budget will take you nowhere. Ask yourself a few questions such as 'Who is my target audience?', 'What are my core strengths and weaknesses?' etc. Once you have found answers to these questions, go to the next step.
• § Finalize pre-operational costs: Pre-operational expenses are those that are required to kick start your business before you get your venture chugging along. These include both fixed and variable costs; fixed costs are expenditures which do not depend on your business alone and are mostly time related, while variable costs are directly proportional to the activity prevalent in your business.

Fixed costs include your rent charges, utility bills, and cost of capital. Variable costs on the other hand include expenses related to advertising, marketing, R&D (research and development), packaging etc.

Which brings us to the next point -

• § Set aside enough funds for R&D and marketing: The biggest blunder one can commit is taking for granted their own 'expertise' and 'insight' into the nature of the select consumer base. Set aside ample money to conduct both primary and secondary market research and develop a marketing strategy; zero in on current trends, consumer demands and demographics, your product niche and USP.

Work on your product and study how it can best cater to the people out there who would be willing to spend on your offering.

• § Better to be safe than sorry: If you have decided to go all the way and launch your dream project or independent assignment, you would do well to set aside some additional 'dough' as legal, licensing, permit, copyright or patent expenses. God help you if you haven't even thought about that and are slapped with a legal notice by a big shark lawyer waiting to feed on the remnants of your self respect.
• § Compile a post-operational expense budget: This is the business budget you'd have to work on to anchor your business through its first year. Note the fixed monthly expenses such as office equipment, supplies, legal fees, loan payments or dues, etc. and chart out your variables such as raw material costs, shipping, taxes, and so on. Always update your budget according to factors such as demand and supply, economic environment, short term and long term goals and results obtained.
• § Be prepared for the best and worst: Optimism is dandy and great while you are just about finding your foothold in the independent biz space, but a little bit of pessimism could actually prevent you from banging your head on your desk.

Undermine your profits and overestimate your outflow so that you are more likely to handle an apocalyptic situation with a clearer head; if your results exceed your expectations, you will be pleasantly surprised and that's a good thing.

A great thing to do is to make different business budgets, one which you can name your 'Utopian budget', the other can be your 'Doomsday scenario budget' and the third one will be somewhere in between; the latter is the one banks and other institutions are most likely to fund and support.

Keep in mind, cash flows are far more important than gaining profits alone. A business is really not much when it can't pay its bills due to a shortage of cash in hand. Stick by your business goals and implement practices which are cost effective and dynamic. With these basics covered, you will be sure to weather any storm that comes your way.

Related Articles
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  Finance Start-Up
  Zero Based Budgeting in Managerial Accounting
  Zero Budgeting for a Home Business
  Passive-Aggressive Behavior Is Useless In A Startup

Article Tags: budget, new business, small business, startup businesses
Referred by: http://jaykubassek.com



Related Forum Posts
Re: Budgeting Approach - Budgeting plays a vital role in any business. I totally agree with Ringo what he said and how they had planned to invest and continue with their business. The information you share over here is nice peter. Small entrepreneur will get a great help from your provided information.
Re: Budgeting Approach - [quote="baconmarius":252nopeg]Budgeting plays a vital role in any business. I totally agree with Ringo what he said and how they had planned to invest and continue with their business. The information you share over here is nice peter. Small entrepreneur will get a great help from your provided information.[/quote:252nopeg] Good points. Also, there's no successful business without a settled budget for this and that so you really have to mange the money inside the pocket, the assets/investments as well as the liquid ones so you'll always have something to grab the moment you need it the most.
Re: Money Does Not Guarantee Happiness - Thanks for singling this point out, Chris. One book that comes to mind that covers it in an overall approach is "The 7 Habits of Highly Effective People" by Stephen Covey. He addresses our inner life and the way it can change our effectiveness home and at work. There are corporations who have taken this model and effectively molded their business around it.
Re: Quote of the Day - ?"Everything happens for a reason and a p - Thanks for the quote and the link. I just watched the Tony Robbins video where he high-5s Al Gore. Good stuff! "Effective leaders have the ability to consistently move themselves and others to action because they understand the "invisible forces" that shape us." Also, "Biography is not destiny... decision is."
Team Building - Effective team building doesn't seem to be something that most business do well. That's sad since it can have such a positive effect on the business and the employees. I totally agree that taking people out for an event and then laying them off the next day wouldn't do anything to make me feel like part of a team. I've also worked with many people who see through the phony attempts at team building. Chris


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