When you’re creating a budget for your company, you have many factors to consider. Startup costs often include funding for a business office, supplies and materials, tech help, utilities, and more.
The Small Business Administration lists nine more possible costs, including legal assistance, licensing, and insurance. It can seem overwhelming. Where do you start?
First, the good news. You are reading this, so you understand the importance of not just having a budget, but having one that works. You might be surprised at how many prospective entrepreneurs charge ahead with nothing more than a rough idea for a budget in their heads. While many others take the time and trouble to make a budget, they don’t use it effectively.
Be Precise, but Be Flexible with Your Budget
A budget shouldn’t be an ideal to which you aspire; it should reflect reality. That’s where a lot of budget-makers go wrong, not just planning for their businesses, but planning for their personal lives as well. Is it realistic to think you can cut energy costs by 20 percent next year? Or that profits will rise 50 percent? Don’t set yourself up to fail. Set reasonable goals and work to attain them.
Here is one more critical point to consider. Budgets are dynamic. If you implement a budget on Jan. 1, you will likely need to revise it a number of times before Dec. 31, maybe even every month.
That’s not to say that you should allow for uncontrolled deviations. If you did, there would be no point in having a budget. However, if, for instance, you run a delivery business and gasoline is a big line item and the price goes up 25 percent in March, you must make that adjustment in your budget and find other places to cut and save money so you remain solvent the rest of the year.
Now that the rules are clear, it's time to move on to the steps to take in creating a workable business budget.
Start by projecting expenses.
The purpose of a budget is to control what comes in and what goes out. Some people simply pay bills and hope there is something left over at the end of every month. While this isn’t the most astute way to run a business or your personal life, if there is extra, at least you are at least staying afloat.
But what if there isn’t?
"Abut 80 percent of Americans are in debt."
That’s where the trouble starts. According to the Motley Fool, about 80 percent of Americans are in debt. Careful planning and budgeting don’t guarantee that this will not be you, but forgoing plans and budgets is usually a recipe for disaster.
Why start with expenses and not revenue? Expenses are easier to predict. How much is the rent? This is a fixed expense (at least for a year). How many widgets you can sell is a guess, and you could be way off.
Entrepreneur lists other fixed expenses for which you’ll want to account, such as utilities, legal and licensing fees, postage, accounting, technology, advertising, and labor.
Some new business owners want to save money by handling accounting and marketing themselves. This isn’t always the best idea, but assuming in your case it is, Entrepreneur recommends keeping track of the hours you spend doing these tasks, so as you grow and farm these jobs out to others, you know how much time and effort it takes.
One more tip for startups from Entrepreneur is to overestimate your expenses for marketing and legal. As a new business, you likely won’t be familiar with how these costs can skyrocket, and you don’t want to be surprised when it comes time to pay the bills.
Next, project revenues.
Since projecting revenue is such an inexact science — especially for a startup — it’s best to have a range. Identify a target for which to reach, but also prepare for the possibility of a slow start.
A LinkedIn article recommends you start by defining the market for your product or service. Once you have this figure, determine the size of this group. Next, look at who else provides this product or service, and how much of the market share you can realistically expect to capture.
As time goes on, you can adjust your growth estimates and your business strategy to reflect the reality of the market and any changes or trends.
It’s at this point some prospective business owners realize they aren’t ready to hang their shingle out. It’s no secret that many new businesses fail — the Bureau of Labor Statistics records data on this and many relevant related topics — so you must start strong to overcome the odds.
Make a reinvestment plan.
A new business might not make any profit for a year or longer. Thus, it’s best to have some money saved up so you can pay your bills while you’re establishing your place in the market.
Once you start to make money, plan how much you will reinvest in your business. Forbes recommends you put most of the profits back into your business in the beginning, the idea being that you want to shore up your base so you can begin to count on a stable income in the future.
Ways to Tweak Your Budget
To help save money, Forbes suggests using independent contractors instead of employees and not leasing expensive office space.
Some estimates for startups put office space at close to 30 percent of the budget. It depends on what type of product or service you provide, but you may be able to save a substantial sum by renting temporary office space rather than locking your company into a lease.
A lease is expensive for a number of reasons. First, the duration is usually at least a year, so if you’re having a cash flow problem six months down the road, having to pay on your lease for another six months could put your business in a real bind.
Second, the costs to furnish an office can be substantial, even if you rent the furniture rather than buy. You need equipment such as computers, printers, and fax machines; supplies such as paper, staplers, envelopes, scissors, and file folders; and necessary items such as soap, paper towels, toilet paper, napkins, etc. You may forgo a refrigerator and microwave to save money, but then you are either spending money on takeout or eating cold lunches at your desk every day.
A great way to save tens of thousands of dollars in this area is to utilize shared office spaces. You can rent a business office space by the month, week, day, or even by the hour.
When you decide to go with rentable workspaces, you don’t have to worry about any of the details. The furniture is already there; all you need to do is show up with your laptop. In fact, you can even rent computers as well. Shared office spaces provide top-of-the-line communal equipment such as copiers as well. If that equipment breaks, someone else takes care of getting it fixed.
With rental offices, you also don’t have to worry about paying for utilities. Electricity, heat, water, WiFi — it’s all taken care of for you.
When all the details of managing a business office are done by someone else, it frees you not only of the expense but the huge time commitment involved in tackling all these details. If ten companies each set up their own business offices and each puts time into making appointments with the tech people and the furniture delivery people and the utility companies, that’s thousands of hours spent managing setup. This, only to realize later you forgot to buy wastebaskets, or the toilet is clogged and you don’t have a plunger, or the lights in the conference room only work on dim. This is the kind of maddening minutia that can drive you crazy and, worse yet, waste precious time you need to manage and grow your business.
Being able to hand these tasks over to someone else is a huge benefit. It allows you to concentrate on what you do best: sell your product or service.
If the ten businesses in the example instead took advantage of renting temporary office space, all the effort they would have spent individually on setting up business offices could be redirected into their companies.
Contact Premier Offices today and find out how much we can save your company by providing you tastefully appointed, professionally pleasing office space.