Running a startup is an exciting journey, but it can also be overwhelming to create a functioning budget that meets your business goals while keeping you financially secure. That’s why we put together this post on startup budgeting for beginners!
If the thought of budgeting for your startup feels daunting, don’t worry. We’re here to help and provide guidance with tips and resources.
Keep reading for our best strategies for creating an effective budget in order to get your startup off the ground.
Understand Your Capital Requirements
Understanding your capital requirements is crucial for any business owner who wants to ensure long-term success.
Whether you’re just starting out or have been in business for years, having a solid understanding of your finances is essential.
Not only will it help you make more informed decisions about where to allocate your resources, but it will also give you a clear picture of your financial health.
It’s important to take a comprehensive approach when examining your capital requirements, considering all factors that may impact your business.
Some of these factors include growth projections, market conditions, and potential unexpected expenses.
By taking a proactive approach, you can stay on top of your capital requirements and make informed decisions to help your business grow and thrive.
Identify Your Business Goals
As a business owner, it’s important to have clear and concise goals to strive towards. Setting goals provides direction and helps track progress.
Before identifying your business goals, it’s important to consider your overall vision for the company. What is the ultimate purpose and what values do you want to embody?
Once you have that in mind, start thinking about what you want to achieve in the short and long term. This could be anything from increasing revenue or expanding your customer base, to launching a new product or breaking into a new market.
Whatever your goals may be, make sure they are specific, measurable, achievable, relevant, and time-bound (SMART).
By balancing your goals and capital requirements, you know exactly where you stand. Knowing where you want to go and how you will pay for that momentum is critical.
Startup Budgeting for Beginners 101: Utilize Free or Low-cost Tools to Help You Budget Efficiently
When it comes to budgeting, it can sometimes feel overwhelming and complicated. Fortunately, there are a variety of free or low-cost tools available to help make the process easier and more efficient.
By taking advantage of these resources, you can have a clear understanding of your expenses and overall cash flow, track your spending, and set goals for your business.
These tools range from simple spreadsheets to sophisticated accounting software that streamline your financial data and provide insights on expenses, revenue, and compliance regulations.
If you want to keep things simple, you can start out by using Google Sheets. If you are just starting out and have a small team, this may be enough.
With a little bit of effort, utilizing these budgeting tools can help you take control of your finances and achieve your startup goals.
Take Advantage of the Grants and Loans Available to Startups and Small Businesses
So, say after you have balanced your capital needs and goals, you have realized that you need a lot more capital than you thought. What can you do?
There are actually a wide variety of ways that most startups fund themselves. These include:
- Cash flow
- Asking friends and family for contributions
- Debt: including loans and credit cards
There are many options. In fact, there are more than many people think. If you don’t have the savings right now and have no idea how to approach VC, consider some of these options.
Anna Marie Cruz, Initiative for a Competitive Inner City manager and former employee at CDC Small Business Finance told Forbes:
“One of the best kept secrets in financing a business is a little-known industry of mission-based lenders, which offer capital as low as $500 and as high as $250,000, a number that seems high, but still falls below the minimum threshold many banks will consider. These community lenders might be non-profits like Kiva or JFLA, or CDFI’s like Accion, Opportunity Fund, LISC, or CDC Small Business Finance. Find these lenders by looking up ‘CDFI Small Business Lender’ or utilizing Opportunity Finance Network’s location-based directory.”
If you do not have the savings, you will likely have to take on some debt. However, explore different types of loans and grants before you start maxing out credit cards.
If you want to learn more about resources like SBA loans and grant competitions, check out our blog post on startup funding.
Identify which Expenses are Essential, Non-essential, and Discretionary
One of the most important tasks for any startup is to correctly identify which expenses fall into which category: essential, non-essential, or discretionary.
This process requires careful consideration and analysis to determine what is truly necessary for the business to thrive versus what can be put on the back burner.
Essential expenses, such as rent and utilities, are non-negotiable and must be factored into any budget. Non-essential expenses, like employee perks or some subscriptions, can be important, but can also be adjusted as needed.
Finally, discretionary expenses, like office decor or team-building events, are nice to have but not crucial to the success of the company. If you are a new startup, things like this are unlikely to apply to you.
After all, most startups begin with just one or two people working in a living room or coffee shop.
If you are just starting out, it’s critical that you take a bare-bones approach. Ask yourself, what is the absolute minimum you need to spend to accomplish your core business goals and facilitate operations?
Striking the right balance between these categories is key to managing your expenses effectively, and ultimately, maintaining a prosperous and sustainable startup.
Take Advantage of the Tax Incentives and Deductions Available to Businesses
As a startup entrepreneur, finding ways to decrease your business expenses can be crucial to success.
One way to do this is by taking advantage of tax incentives and deductions available to startups.
These incentives and deductions are designed to help new businesses and can include everything from write-offs for equipment purchases to research and development credits.
Depending on how you work, you can write off things like wifi costs, renting an office space, and even potentially some expenses related to your vehicle.
While navigating the world of tax incentives can be daunting, it’s important to remember that there are experts available who can guide you through the process. Especially if you have little experience, it is likely worthwhile to talk to a professional.
By taking advantage of these incentives and deductions, you can put your startup on the path to success.
Final Thoughts on Startup Budgeting for Beginners
With the right planning, budgeting for your startup can become a manageable process.
Be sure to understand your capital requirements, identify your business goals, use free or low-cost tools to budget efficiently, and identify which expenses are essential, non-essential, and discretionary.
Investing the time and effort into familiarizing yourself with the resources available to startups – like grants, loans, and tax incentives – will prove to be advantageous when it comes to getting off the ground.
Startup budgets are never perfect, but with a little patience and due diligence, you can set yourself up for success with a bit of planning ahead. Keep in mind that after you have put together your initial budget plan you should regularly review it to consider changes in market conditions or new opportunities.
Don’t forget that even successful businesses monitor their budget often and make changes as needed – it will help ensure you stay solvent!
Budgeting wisely from the start is one of the best investments you can make for your startup.
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