A budget is a key element of any business plan, so creating it is the most important task facing a beginner entrepreneur. But before you grab a pen and paper you should carefully consider a number of things:
- What do you need to get started?
- What are your constant and variable costs?
- What can be done to reduce costs?
- What can we do without in the first stage?
The less you need to start, the sooner you start to make a profit.
Step 1: Plan “Day One” of your business
The starting budget of the first day can be divided into four main categories:
- The cost of renting premises and signage.
- The cost of fixed assets (they are sometimes called capital costs). This category includes: furniture, equipment, vehicles – in short, everything to get started.
- Costs for stationery, advertising booklets, etc.
- Transaction costs.
Step 2: Calculation of expenses
Collect information about your fixed costs each month. These are expenses that do not change and do not depend on the number of your customers. Here is a list of the most common monthly fixed costs:
- Credit card service
- Website content
- Marketing expenses
- Taxes (do not change)
- Salaries to employees
- Credit contributions
Then you need to calculate the variable costs, which vary depending on the number of customers. These may include:
- Sales tax
- Production costs
- Raw materials
- Costs associated with packaging and delivery of goods to customers
Step 3: Calculation of sales
This is the most difficult part of budgeting since we do not know how well our product will sell. Therefore, we will make three forecasts:
- An optimistic scenario – your numbers are at a good level and the product is in demand.
- A pessimistic scenario – sales are at a minimum and the amount of customers leaves much to be desired.
- A moderate scenario – a middle version.
Step 4: Budgeting
Combine sales information with cost data. Changing the sales data using the three sales scenarios, you can see the result in your cash balance at the end of the month. This balance sheet will give you information about the financial situation of the enterprise and what kind of loan may be required, if necessary.
And finally, the main piece of advice: always use the minimum level of sales as the base, but estimate the costs at the maximum. Remember, everything costs more than we think, and achieving success in selling things takes a lot of time.