Back to Basics: Creating a Startup Budget in 5 Simple Ways

August 11, 2021

Small business owners and startup founders often struggle with this crucial step when establishing their business: budgeting. Some leave out this essential process and dive straight into their business operations, while others are simply unsure of how to go about it. 

A startup budget is the ultimate tool that will help entrepreneurs set their businesses up for success. Some of its evident benefits include making sound budgeting decisions, preventing financial challenges, and receiving funding to grow your business. However, we know that developing a budget isn’t the simplest of tasks — that’s why we’re here to help. 

6 ways to create a startup budget 

  • Determine your business goals 
  • List your various income sources 
  • Categorise your expenses
  • Track your profit  
  • Create an estimate of your financials 
  • Do the math and make adjustments

1. Determine your business goals

Before even getting started on creating a budget, it would be ideal to identify your business goals first. Having a clear idea of what those goals are will outline how your funds will be used. From there, business owners can slowly start creating their budget plan and use that as a roadmap to ensure that they are on track with meeting their objectives. 

Most founders may decide to skip this step entirely and go straight ahead with planning their budget. But setting goals has the power to give a company direction, motivation, and ultimately, success. 

2. List various income sources

During the process of developing your budget, you need to examine your revenue and know every area where your cash flow may enter from. Let’s take a look at a freelance graphic design business, for instance. Your sources of income could come from commissioned client work or course content that you are selling online. 

Instead of categorising your sales as a whole, take the time to further group them into specific income brackets to stay organised. Additional income sources could also come from business loans, investment income or seed funding. Don’t forget to include those in your budget as well! 

3. Categorise your expenses

Whether it’s manually creating a spreadsheet with pen and paper or accelerating the process with digital solutions, begin categorising your expenses to 

Divide your costs into the following categories: 

  • Fixed or overhead costs: Also known as indirect costs, these are expenses that do not change regardless of the number of customers each month. These include rent or mortgage, insurance, account maintenance fees, payroll and other employee compensation, and website hosting. 

  • Variable costs: Unlike fixed costs, variable expenses vary each month depending on the amount of output produced. Some common examples are utilities and equipment, transportation costs, professional services, and advertising costs. 

  • One-time expenses: Such expenses are usually only purchased once before a startup is established. These are essentials like inventory, furniture, domain name, vehicles and security deposits. Do note that these costs are not tax-deductible. 

While there are more expense categories to consider moving forward, these three should get you started towards creating a healthy startup. 

Read more on how to keep your business expenses organised here

4. Track your profit

A significant indicator of a company’s financial health is its net margin profit. Because it measures the percentage of sales revenue that is convertible into gross profit, it shows how effective a business is at managing its operations. 

New business owners often use ‘profit’ and ‘revenue’ interchangeably when they mean different things. Revenue is the total amount of income generated from normal business operations including discounts and deductions for returned merchandise. On the other hand, profit refers to the income earned when the total revenue exceeds its total expenses. 

Here’s a simple online calculator to help you track the net margin profit of your business. 

5. Create an estimate of your financials 

At this point, you have a clear outline of your business goals, noted down all your sources of income, and organised your expenses. What’s next? Pull it all together by making a comprehensive estimate of your cash flow. Some may not see the value in going the extra mile when it comes to financial projections. But this will help businesses monitor their cash flow and make the necessary adjustments to their budget accordingly. 

Aim to calculate your company’s revenue projections to help you predict when you may have financial difficulties, allowing you to strategise quickly. Another way to project your cash flow is by creating a 12-month cash flow projection. Evaluating your expenditure every month will help keep your spending in order. 

To streamline your financial processes even further, most modern accounts for startups come with real-time data and tracking on their expenditure. Take advantage of the best finance accounts and their smart features to optimise your budgeting. 

6. Do the math and make adjustments

All that’s left to do at this point is calculate your total costs and make the necessary adjustments where applicable. As you develop your budgeting strategy, you want to be adaptable to cope with changes throughout the year. Static budgets usually only act as a structure but can change due to various trends and unique requirements. 

Once you’ve done the math, cut down on unnecessary expenses like certain non-essential and overhead costs to save money and put it towards growing other aspects of your business operations. 

Manage your finances seamlessly with Aspire 

Developing a startup budget is one thing but sticking to it is another story. Given the fast pace of the business environment, you may come across several hurdles along the way from data inaccuracies to labour-intensive tracking. But being equipped with the right tools for success can help you overcome these with ease. 

Avoid budgeting challenges for your startup altogether when you sign up for the Aspire Business Account. Simplify your expense categorisation with the expense management feature and track your profit in real-time through the mobile app. In all aspects of your business budgeting, we got you covered. 

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