When I started my entrepreneurial journey, I had no idea about budget for business. The more I journey through my ideas and projects, understanding finance becomes very important. It is a very crucial part of developing your business ideas. Money is important to build your idea but it is not the only tool you will need. However, in this blog, I want to show you how to work around knowing approximately how much money you will need to budget for in order to start your business idea.
The person that has the numbers of your business is one of your key employees if that’s not you. I do not expect you to explore deep details about budget and numbers, but know the basic principles of getting a budget for business together.
Why you need a budget for business ideas.
- Budgeting helps you exercise your planning skills.
- It is very useful to get investments, loans or even monetary gifts. An investor will ask you how much you need. The bank will ask you. Even your father or rich uncle will ask you. If you start thinking about and calculating aloud in front of the bank manager or your rich aunty, sorry you have lost that chance.
- Budgeting helps you stay accountable to your business idea.
- Having a budget will allow you to see what to reduce or totally cut off so that you have enough money to start. It gives you a monetary picture of your idea.
- Having a budget for your idea is very essential in crafting your business plan or strategy document. And trust me someone will ask you.
Let’s start budgeting – expenses
Expenses are the things you need to spend money on in order to start your business. But it’s more. What about the things you need to spend money on to run the business? You also need to spend maybe even more money to grow the business, but that comes later. So let’s focus on starting and running expenses to create our budget for business. Start with expenses as this is always where things start from. But before, you might want to watch this episode of my YouTube channel.
Split expenses to fixed or variable
Consider splitting expenses into fixed and variable expenses. Fixed is something that doesn’t change every month. Variable is something that changes based on your needs. Depending on your business, you might want to start with the fixed stuff you must spend money on. Stuff that is fixed like stuff that does not change their prices monthly or weekly. So stuff like rent or purchase of an equioüpment is basically fixed cost. Write all these stuff down. Then you can move to stuff that falls under everything utility like power supply, waste removal fee, water fee, security and such.
Factor salaries and your cost from the start
Human ressources is a very significant category if you will have to employ to start or run your business. Calculate the cost every month and add it. It is also important that you add your own salary if you were an employee. But be wise, your salary cannot exceed the minimum amount you need to survive. Because at this stage of starting and running your business, you have not started making revenues or profits, so you are still hustling to grow the idea. You can not begin to earn excess. Everything needs to stay in your business. Rome was not built in a day, that’s how the saying goes and it applies here.
Think about an operational day when you budget for business.
I explore a bit in that YouTube video above. Working expenses is more important than the investment in starting. If you start but do not have money to operate, you will not make money. One thing to note is that you have to create your budget for monthly baes. Because our goal is to know what your expenses are monthly. We want to try to figure out an estimated amount you need to 1.) start your idea and 2.) run your idea monthly. So it is important that you separate this. The cost to start and the cost to run. When you are raising funds, you will have to raise the cost to start and at least the cost to run the business for at least 6 months.
Get a budget estimate for the first year
After you have estimated the cost for all these important stuff from human resources, capital assets which are tools and equipment, cost of the raw materials, rent and utility, add operational cost like logistics, working materials, transportation and telephone, then get the total of these costs. Most of the capital assets are purchased or paid for once. Others are monthly. Now multiply them by 12 months to get the total cost or expenses you will need for the first year. Add all the totals and you can see what amount you need to raise. Make sure you watch that video above as it will give you more insight to how to create this budget for business.
Some more technical stuff for budgeting on excel
There is some more technical stuff apart from expenses if you want to draft this out on an excel sheet. Include a column for the units(like per month or piece), cost per unit (How much one cost for that unit), quantity( the amount you will need for the whole year as it is a year’s budget. If your unit is per month, then the quantity is 12 as you have 12 months in a year) and lastly get the total which is the amount per unit multiplied by the quantity needed in a year (Unit cost X quantity).
I hope this blog on budget for business was not too technical. If you want to learn more of business mechanics to develop your idea, remember to subscribe to my newsletter to get updates.