Money isn’t everything, but it can be everything when you are starting a new business.
With a startup, it is critical to have a balanced budget of expenses from the start. This budget is essentially a financial plan of your expenses for your startup. This plan takes into account the revenue and expenses that are projected going forward.
Estimating these expenses can help your startup with spending, discover your business capital, and help establish your future revenue.
A budget of expenses is also important for helping you and your partners see how your startup is succeeding.
Startup Wars explains the basics:
A budget of expenses does several important things for your startup:
- Helps you track your income
- Helps you visualize your expenses incurred
- Establishes any running balances you may have
- Guides you in seeing patterns of spending habits
- Aids you in future planning
What is an Operating Budget?
An operating budget has many factors that you should consider when you are making a budget.
Here is a basic list of the essential budget expense category components, according to Brex:
- Rent or mortgage payments
- Home office costs
- Furniture, equipment and machinery
- Office supplies
- Advertising and marketing
- Website and software
- Entertainment, travel expenses and business meals
- Vehicle expenses
- Salary expenses: payroll and employee benefits
- Taxes and Insurance
- Licenses and permits
- Interest payments and bank fees
- Membership fees, professional fees and business services
- Training and education
Establishing your budget expenditure and periodic expenses can help you plan for your business strategically. Your cash budget flow can be used with a solid purpose.
Ask yourself the following questions:
- Are you planning to hire any additional employees for your business?
- What are your administrative expenses?
- Do you anticipate any large capital expenditures this coming year or next?
- What are your startup’s projecting sales for the next year?
- Do you expect margins to improve or decline in the next year?
Partners, financial advisors and investors will need these questions explained in order to plan for an annual operating budget. Creating an operating expense budget with clear projections helps your team focus the finances of your startup business.
Be sure to include every small amount in your allocated budget. Do you have optional expenses? Create a three year plan of operating expenses vs non operating expenses with your financial advisors and CFO.
Keep an eye on every penny. Business expense statements are a great tool for observing employee cash flow.
What is an Expense Statement?
An expense statement is an itemized statement that is created to show the financial transactions for your business. It is used for reimbursing your employees for any out of pocket expenses (like business traveling, for example).
It is beneficial for your business to have an expense statement to make sure that you are not overpaying your employees or losing money on unnecessary expenses.
Provide some basic guidelines of allowed expenses for your employees for cost budgeting, but do allow for some individual discretion.
Benefits of Budgeting in Business - A Summary
The key to the success of your new business starts with having a customized expense budget. It will allow you to set goals for building your business. Be conseravtive with financial planning and budgeting. Start early.
Your business plan is greatly affected by your budget. It is crucial to set up your expenses from the start, taking every small expense into account.
The most up-to-date financial information from all departments will guide you in future endeavors. Be sure to constantly re-evaluate your expenses. Monitor it monthly to see the flow. A CFO can head this evaluation for you.
In closing, be sure to compare your forecasted expenses with the actual outcome. Learn from it. Use that information wisely.