Starting a New Business? Learn About Your Budget and Things It Should Include
A small business budget is helpful in three important ways:
• To have an exact idea of the start-up costs
• To learn about all possible fixed expenses for the first year of business operations
• To estimate the variable expenses for the first year of the business operation
Once your business operates successfully for the first year, it starts exhibiting stability. Even then, you must not leave the habit of creating a monthly budget to keep your business on the right track.
However, the small business budget for business start-up and for the first year of the business operation should be carefully designed and implemented. You should not hesitate to hire a professional accountant with expertise to accomplish this task.
Meanwhile, you can learn some important things in this direction from the discussion below.
Calculating Start-Up Cost
You have a good business idea in mind and now, you have decided to turn it into a working entity.
Here is the list of start-up costs that you must be ready to spend on:
• Securing a property is the first requirement if you are not into a home based business. You may consider buying or taking the property on lease. Security deposits for the property on lease are among the main start-up costs.
• To convert the property into a business facility, you would need to buy furniture and lighting equipments. Renovations and repairs must also be included in the cost.
• Even before you start the production of your business products, you need to invest in the research and development of the same. Even if you put up a store to sell branded products, you need to invest in market research to learn about the individual interests of people.
• Business start-up advertising and promotion too contribute toward start-up costs. Apart from offline advertising, you are required to consider the cost of building a website and other online promotional activities.
• At the very start of the business, you will be required to buy business equipments and building inventory.
Business incorporation requires other costs to be taken into account. These include costs for obtaining business permit and license and fees for professionals like accountants, consultants, and attorneys.
Fixed Expenses for the First Year
Once your business is in operation, the first year will give you an idea about your fixed and variable expenses. Here are some of the fixed expenses you will bear annually:
• If you have borrowed a business loan, you need to repay the same.
• Business insurance costs are other major fixed expenses that you must take into account.
• Another major contributor toward fixed business cost is the rent you will be paying monthly. This includes rent for the property, as well as for the equipments you take on lease.
• Utility bills are other monthly expenses that a business bears in the form of fixed expenses. Phone and electricity bills are based on your usage, but they almost remain the same for each month. Internet connection bills too must be included in this category.
• Employee compensation is one significant business cost that you will be paying every month. However, this business expense may increase depending on the employees you keep hiring in the subsequent months. Similar business cost is related to the fees you pay to the accountants and business consultants
Variable Costs for First Year
There are some business expenses that keep varying from month to month or from year to year. However, you should have an idea of these expenses at the very beginning of the business so that the complete business budget can be defined accordingly.
Here are some of the most probable variable business expenses:
• Cost of buying new equipments and replacing the old faulty ones is variable in nature. You may spend on them for one month, or may not for the next.
• Business advertising costs too is variable in nature, as you might extensively promote your business in one month or change the advertising frequency for the next month.
• Cost of buying raw materials and maintaining inventory also depends on the level of demand and supply in the market.
• Packaging costs, shipping costs, and business mailing costs are other expenses that are decided on a monthly basis.
• Employee commissions too depend on the monthly performance of your staff and sales executives. Therefore, these are deemed variable business costs.
Business taxes also depend on your quarterly and annually expenses and earnings and are variable costs. Now, the question is how to prepare your budget to include all these items.
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A small business budget is helpful in three important ways: • To have an exact idea of the start-up costs • To learn about all possible fixed expenses for the first year of business operations • To estimate the variable expenses for the first year of the business operation Once your business operates successfully for…