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Budgeting your startup – Do I need to and how do I do it?

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Many people have great ideas for a startup but very few are able to successfully convert a startup into a regular source of income. Here’s what happens to a regular startup entrepreneur:

XYZ  has a great startup idea

XYZ is very enthusiastic about starting up his company

XYZ doesn’t write a business plan

XYZ borrows money, or manages to find an angel

XYZ uses up all his funds on setting up

XYZ goes bankrupt before his business could surface.

So what should a person do to successfully run a business? He should budget.

Why Your Business Needs a Budget

It is pure stupidity to jump into something without knowing the flipside of it. People realize that when thinking about a business idea. They think about the pros and cons of the business idea, but neglect it when it comes to something even more important that the idea itself. The revenue stream for it. A business budget will help you figure out how much money you have at the moment, how much is available for spending , how much can be allocated for what and how much you can spend on particular areas like marketing and advertising. It also helps you attract investors because every investor will be interested in seeing an entrepreneurs budget plans and spending ideas before jumping into any sort of investment. You need to however adhere to your budget strictly and make it a point not to waver from it.

Budgets also helps you reduce the risk of committing on to something expensive. You might need a state of the art machinery for your modular kitchen company but realize you might end up not buying interiors for your office space. If you are not budgeting you might never realize that there is a clash between these two.

So how does one get started?

The best way to do this is to find similar startup entrepreneurs on social networks like twitter and facebook. There are definitely people out there who have done it already or are one step ahead of you in the game. For example, if you are looking at budgeting, there definitely are people who have looked at it a few months back and successfully found a solution. Identify them on twitter or ask questions on Quora. Here are some examples of questions asked on the website.

 

Definitely use a budgeting software or an online tool:  It is most important to use a software to budget your startup.  Go free in the beginning and later purchase licensed versions. There are softwares like indinero , quickbooks, planguru, or even excel that help you plan your budget in an organized manner. Review these softwares, find the one that suits your needs the most and make use of them to the fullest.

What does a budget comprise of?

You should include your revenues, costs incurred and also your profits on your budget for a particular year. Budgets are usually done on a yearly basis, and are divided on monthly derivatives. you should allocate columns for estimates and actuals. When start your budget you should fill in your estimate expenses for the upcoming year, and as the months progress, you should fill out the actual expenses incurred. This will help you improve your planning and give you a better understanding on cash-flow and usage.

Should I consult an expert?

The financial field is filled with experts expensive and cheap. First look into your own family tree if you are able to find someone in the financial sector to help your budgeting needs. If not try to do it yourself. The budgeting software helps even a layman to get his budgeting done effectively. If none of these works out, hire a professional. He will help you budget for your startup, give tips on things like registrations and other legalities

How do I create a Business Budget

Most of you out there might not have drafted a business plan before. So here are some tips.

Targets, goals, estimates : Do they mean the same? Maybe it does but this is the single most important thing when it comes to business budgeting. For a startup business, think of what sort of realistic profit your company is going to make in the coming year, and write it down roughly. This will drive the rest of your expense estimates.

There are many things to consider. If you are looking at an office space for the coming year, there are things to consider such as electricity, water, maintenance costs, computers, wages, recruitment, marketing, advertising, financing etc. All these needs to have allocated funds.

Initially in an estimated time of one year, you might have to revisit your budget many times. Here’s a practical example : You might have brand new computers but no one to use it. You might want to recruit an employee to use that computer while you need to cut down on some other cost. These are taken care of, by budgeting and allocating funds for these things during the start of the year. If you think this is rocket science and you are spending too much time on this, rather than the actual work , go to an expert and let him handle it.

Closing Comments:

How much should I allocate towards a particular channel like marketing? This is a question that never can be answered. The answer to this question is experiment and find out what works best for you. One tip however is not to put all your funds into one channel. If your company needs a great viral marketing campaign, it’s not wise to spend a million dollars on it and have whatever’s left on the company’s actual functioning. Allocate funds for a period of one year. Monitor which has earned you most returns and which has not. Reduce the investment done on the lesser earning channel and increase on the ones that earn you more.


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