Freelancer to Startup: FIve Ways to Create a Healthy Startup Budget
Starting a business is an exciting time. You’re full of enthusiasm and excitement at all the possibilities. It’s fair to say you have big plans for your business - you wouldn’t be here if you didn’t.
However, you know that the most important thing you can do is create a startup budget. Without the appropriate funds, getting your business off the ground will be a challenge.
Let’s get down to business.
What is a Startup Budget?
Starting a business can involve a lot of cost and without taking the time to consider your finances, it’s easy to run out of money. A startup budget is a simple way to organise your money by tracking your income and expenses.
Having a startup budget ensures you have the finance you need to get started. A startup budget is crucial to your business success. It helps you make informed financial decisions, hire employees, automate business processes, invest in tools or equipment, and successfully grow your company. Creating a healthy startup budget will help you:
Avoid Overspending: spending money you don’t have is easily done - especially in the early days of running your business. According to Inc., “no mistake can sink a new business faster than undisciplined or unfocused budgeting. This is something referred to as overspending, but what it really means is spending on the wrong things at the wrong time.”
Having a budget and understanding how much money there is coming in and out of your company, helps avoid overspending or investing in all the wrong places.
Achieve Your Goals: whether you want to be financially stable enough to hire a team of people, rent a commercial workspace, or secure yourself a mortgage, having a healthy financial record is essential.
“Getting a mortgage as a contractor in the UK might prove difficult if you have less than 12 months’ worth of working history, as most lenders need you to have been trading in this capacity for a year,” says Pete Mugleston of Online Mortgage Advisor. “The good news is that for many, there are numerous options available. Lenders who offer these mortgages usually assess the borrower based on the figures they declare as net profit (for sole trader mortgages and partnerships) or your salary plus dividends (if it’s a mortgage for a limited company director)”..
Building up a healthy history of accounts can go a long way towards securing your personal financial goals.
Help You Identify Problems: creating a healthy startup budget can highlight areas in your business where costs could be re-evaluated. Having a healthy budget lets you evaluate your finances and identify any financial drains that could be fixed to improve your bottom line. We cannot emphasise how impactful staying on top of your budget can be for securing your professional success in the long term.
5 Ways to Create a Healthy Startup Budget
Here are 5 easy ways you can create a healthy startup budget for your business. We hope these tips provide you with some useful strategies.
Analyse Your Finances
When your business is just starting out, it can sometimes feel like there’s more money going out than is coming in. As such, most of your efforts are focused on just staying afloat. Analysing your finances at this stage can feel pointless, however we strongly believe there is no better time than straight from the get-go.
By taking the time to analyse your finances, list your expenses, earnings, and profit margin, you learn what your financial situation looks like. This provides you with an excellent starting point from which to create a healthy startup budget.
List All Sources of Business Income
If you want to create a healthy startup budget that will help your business succeed in the long-term, it’s important to list all sources of income. This helps you see the bigger picture and understand just how much money your business is bringing in each month.
You can use this information to create a healthy startup budget for your business that accurately reflects your earnings, saving potential, and provides a strategy for long-term growth. As Investopedia explains: "Knowing the present condition of any company is essential to creating a successful growth strategy."
Make Room for Unexpected Costs
One of the biggest challenges startups face is dealing with unexpected business costs. These could include anything from broken equipment to covering late invoice payments. When businesses fail to make room for unexpected costs, failure is sadly inevitable.
If you want to create a healthy startup budget, you need to make room for unexpected costs. Some business owners do this by setting up an emergency savings account. In this, they set aside a minimum of three months’ earnings to help cover unexpected business expenses if and when they arise. Making room for unexpected costs will ensure that when the hard times hit, you are prepared and able to wait the storm out.
Determine Your Fixed Business Costs
When you launch your business, there are a number of fixed costs that typically remain the same month to month. Some examples include:
- The rent or mortgage costs for an office space
- Business insurance
- Website hosting and domain costs
- Business accounting software and bank fees
- Employee payroll
Determining your fixed costs is essential when creating a healthy startup budget. When you understand your fixed costs, you can make informed financial decisions without jeopardising your company’s success.
Review Your Budget Often
Creating a healthy startup budget is merely the first step. You should aim to review your budget every month or so to ensure you are on track. Taking the time to re-evaluate your budget helps you deal with major expenses, keep on top of your finances, and avoid the surprise of unexpected costs.
According to Info Entrepreneurs: "To use your budgets effectively, you will need to review and revise them frequently. This is particularly true if your business is growing and you are planning to move into new areas. Using up-to-date budgets enables you to be flexible and also lets you manage your cash flow and identify what needs to be achieved in the next budget period."
Creating a healthy budget will set you in good stead for achieving long-term business success. We hope the tips in this article will help you take control of your finances and fund the growth of your business