Financial Firsts: How to Budget Your Business Right

Brooke Chaplan

February 14, 2014


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Starting a new business is always a huge step, no matter what industry you are involved in. While many focus on the ideas for their business, finding a location, hiring employees, and formulating a business plan, they ignore budgeting for their business. Creating a budget for your business is the most important step, for it creates the platform to ensure short and long term financial success.

Why Budgets Matter

Budgets formulate the financial plans that will determine whether or not your business can be a viable success. After all, success is not measured in qualitative terms, but in quantitative facts. You are starting a business to make money, and your budget will determine whether or not you will see a profit in a year, three years or five years. Similarly, budgets create limits for initial costs, fixed yearly costs, and variable monthly costs.

Setting a Budget

The first step to creating a budget is to identify how much money you can spend over the next three to five years. This amount should include your savings, any loans you have taken out, and any money that partners/investors have already pledged to your business. Compare that figure with your estimated cost calculation, which includes initial costs, fixed yearly costs, employee salaries, and a small buffer for unexpected costs/fees. By comparing what you already have to how much you will have to spend, you can get an idea for what your monthly and yearly revenues should be. If your calculated revenues are much less than the costs, you need to rethink your business plan.

Regular Updates

According to Chapter 7 lawyers Lynch & Belch, budgets should be revisited every month. Not only do monthly updates allow for a reassessment of revenue forecasts, but they let you discuss any new costs that may have arisen for the business. Monthly meetings should also be used to come up with creative solutions for cutting costs. Keep these updated weekly, monthly, and yearly to make sure nothing slips through the cracks.

Tie Bonuses to Budget Goals

By motivating employees and upper management to strive for budget goals, their bonuses should be tied to your business's yearly performance. If the business meets/exceeds its goals, employees should be reasonably rewarded. On the other hand, a business that is failing to meet its revenue requirements should not be doling out huge bonuses to employees.

Having a great idea is only the first step to starting a new business. In fact, it is far less important than creating a viable financial budget. Having a budget, and sticking to it, will help ensure that your business is a long term success.