Start-Up Budgeting: Basics & Tools

With an upsurge in the start up world, many entrepreneurs are jumping on the bandwagon without doing due diligence on their proposed business ideas.  Their focus, understandably, is selling their product or service, which is seldom enough to create profitable business.

Due diligence in building your start up venture is critical, and the first step is to figure out your budget.  Budgeting forces you to think through all the important numbers and to develop a picture of what your business is going to look like the upcoming fiscal quarters.  From big ticket items like legal and supplies to basic costs such as printing and shipping, budgeting will force you to come to terms with what is needed to make your business succeed.  More importantly, your ability to set realistic financial goals for sales, expenses and profits is a true measure of your ability to succeed in business.

Startup costs include two kinds of spending. You might not care about the distinction, but standard accounting and finance do, and, more important, the government does. It affects taxes. So take a couple minutes to understand the distinction.

Expenses. These will be deductible against future profits, so they will eventually reduce taxes; at least they will if you ever make a profit. So keep track of expenses as expenses. These include spending on rent, payroll, travel, meals, consulting, most (but not all) legal expenses, and so on.

Assets. Money you spend on assets isn’t deductible against taxable income, so the bookkeeping is different, like it or not. Assets are things like signs, furniture, fixtures, cars, trucks, buildings, land, and — harder to deal with — cash on hand and inventory on hand.

With these distinctions in mind, here are tips for creating your budget:

1. Include 12 to 24 months of business operation at a time.
2. Use a simple spreadsheet that you fill out in pencil before you start using a computer program.
3. Once your budget is set, use computer programs like Excel to change numbers quickly.
4. Work out a complete budget before beginning business operations.
5. Review and revise your your budgets for the next 12 months.

A basic business budget contains four major numbers: (1) projected sales and revenue; (2) projected total costs of achieving that level of sales and revenue; (3) the profit or loss from operations based on the two numbers above; and (4) the cumulative total of profits and losses over time.

Your budget should reflect the cumulative profits or losses of the company over a period of months. Profits and losses are added together each month to get a total; these totals tell you when your business will break even and begin earning a profit. The total of losses will tell you how much money you will have to borrow or provide to the business before it is profitable. An accurate budget should reveal the truth about your business’s potential.

Tools to check out:

Enloop.com:  they are a free source for start ups putting together a financial forecast.  Upgrades are available but the free version is a great place to start.

LivePlan: the first 60 days are free, and after that it’s only $20 a month to develop a serious, well done business plan.  It would be $20 well spent.

StartUp Blogs for NY: Sardar Law Firm writes a great blog for start ups in the NY area.

- Jeremy Gould, The BroadStreet Times 

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