How to Create a Business Budget for Your Startup: A Comprehensive Guide

Budgeting is one of the most powerful financial tools for any small business owner. It allows you to control your cash flow instead of letting it control you. A comprehensive budget includes both short-term, month-to-month plans and long-term, quarter-to-quarter projections. This approach helps you prepare for immediate needs and future growth.

Begin by determining the costs necessary to open your doors and start accepting customers. These costs can be categorized as follows:

• Facilities Costs: Include leasehold improvements, security deposits, and signage. Even if working from home, consider any setup costs.

• Fixed Assets: List furniture, equipment, vehicles, computers, and machinery needed to start your business.

• Materials and Supplies: Office supplies, promotional materials, and initial stock.

• Miscellaneous Costs: Legal fees, accounting setup, licenses, permits, and insurance deposits.

Identify ongoing costs that will recur each month:

• Fixed Expenses: Rent, utilities, phone bills, credit card processing fees, website fees, equipment leases, office supplies, business insurance, and professional fees.

• Variable Expenses: Postage, packaging, shipping costs, commissions, production costs, raw materials, and wholesale prices.

Predicting sales can be challenging for a new business, so consider creating three scenarios:

• Best-Case Scenario: Your most optimistic sales estimate.

• Worst-Case Scenario: Your least optimistic estimate, assuming minimal sales.

• Likely Scenario: A realistic middle-ground estimate.

Remember to factor in the percentage of sales you expect to collect each month. For instance, if you estimate sales of P50,000 but only expect to collect 85%, your actual cash collected would be P42,500.

Cash flow is the amount of money moving in and out of your business each month. Combine your total costs with the total collections from sales to understand your monthly cash balance.

Example Cash Flow Statement:

Monthly sales: P50,000

Collected: P42,500

Total fixed costs: P26,900

Total variable costs: P13,750

Total cash balance: P2,150

Your cash balance is crucial for understanding your working capital needs and ensuring you can pay your bills.

Whether you create your budget manually or use software, it’s wise to seek input from a CPA. They can provide valuable insights and help ensure your budget is realistic and comprehensive. Their involvement can range from advisory to fully preparing your financial plan.

• Use Accounting Software: This can streamline the budgeting process and make it easier to update and adjust.

• Prepare for Lenders: Most lenders require three years of monthly cash flow statements and quarterly/annual income statements.

• Separate Taxes: Income taxes are variable expenses and should be categorized separately from fixed and variable costs.

Creating a budget for your startup involves careful planning and realistic projections. By understanding your initial costs, estimating monthly expenses and sales, and managing your cash flow, you can build a strong financial foundation for your business. Regularly reviewing and adjusting your budget will help you stay on track and achieve long-term success.