At establishment and startup phase of new business the gaze and mind movie is often over the horizon with visions of shining business incomes, happy spending customers and a lifestyle of leisure as the absent manager. The spoils of developing an earth-shattering invention or innovation or a must-have unique product that is more addictive than a smartphone.
But what often happens along the road to business euphoria is a financial road kill and startup scare tissue because all the expenses were not identified. To avoid financial bellyflops and missteps at startup phase here are some points to consider;
The 3 Budgets.
There are 3 budget lists that should be developed before starting business; Personal, Establishment and Operational.
Personal Budget
How much money does it costs for you or your family to be on this planet? Make a list of where the money goes now; home, food, vehicles, travel, mortgage, fuel, entertainment, hobbies, etc. When you quit your job or cut off your current income, the new business will be responsible to generate income to pay all expenses and maintain the lifestyle – write a list and total your monthly expenses. Your personal expenses may be more than you imagine or budget for.
Establishment Budget
What are all the expenses required to get this business off the ground? Write a list of all the purchases and one-off costs; business registration, company set-up, equipment, office or workshop lease, insurances, website, marketing materials, working capital, stock, etc. What is this total amount? Will you need to borrow, will you spend your savings, when will this investment be returned? Can you afford this and will the business make enough to repay?
Operational Budget
This expense budget is best calculated on a monthly basis. List all monthly expenses required to operate. Include rents, vehicles, fuel, phone – internet, insurance, wages, advertising, loan repayments etc. For items paid yearly like vehicle registration divide by 12 to calculate a monthly cost. These fixed costs will accumulate regardless of having no customers or taking the weekend off.
These valuable budgets equip the startup entrepreneur to assess the reality and costs of establishing and running business. Coupled with a breakeven analysis before committing to leases, purchasing stock or buying an existing business a clear financial position will enable good choices. Another powerful startup finance calculation from budgets is cash burn. How long can business survive before reoccurring income is guaranteed.
Remember – you dont need to start a business to go broke – better to do the financial calculations on paper first with and experienced BEC Business Advisor. Contact us for free 3 Budget templates.