How to Create a Budget for Starting a Business

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One of the most important tasks in building a startup is creating a budget. A sound budget allows you to present expected revenues, expenses, and cash needs for both current and future business operations over the coming months, quarters, and years.

Questions to Ask Before Starting the Budget

Before you start creating a budget for your startup, you should ask yourself some questions:

  • What do you need to open your business doors on day one?
  • What are your fixed and variable costs on an ongoing basis?
  • What can you contribute to keep costs low?
  • What can you obtain as donations from friends and family?
  • What can you do without?

Note: Keep the “essentials” to a minimum. The less you need to start your business, the quicker you’ll start making a profit.

Step 1: Planning for “Day One” of the Business Start

Start by determining what you will need on “day one” of your business – the costs to open the doors (or launch your website) and start welcoming customers.

The startup budget for “day one” can be divided into four categories (not all categories may apply to your business situation.) The categories include:

  • Utility costs: include all the costs of preparing your leased or purchased location for your store, office, warehouse, or other building. These costs may be known as leasehold improvements or tenant improvements. For example, you may need walls, a bathroom, or a special secure area in your office or building.
  • Fixed assets: What are the fixed assets (also known as capital expenditures) such as furniture, equipment, and vehicles necessary to set up your location and start your business? Fixed assets also include computers, machines, furniture, and anything else for your office, store, or warehouse needed to set up your business.
  • Materials and supplies: Different from assets, materials and supplies include office supplies and any advertising and promotional materials. You’ll need an initial supply of these materials to get started.
  • Other miscellaneous costs: Miscellaneous costs include initial fees for an accountant to help you set up your accounting system, local licenses and permits, insurance deposits, legal fees for registering your business with government entities (like your state), and preparing operating documents.

In your list of these startup costs, include items that contribute to the business, such as computers and office furniture. Record the cost of these items in your list so you can get credit for them as collateral for a business loan.

Step 2: Estimating Monthly Fixed and Variable Expenses

Fixed expenses: are costs that do not change and do not depend on the number of customers you have. Gather information on your fixed monthly expenses. Some of the most common fixed monthly expenses include:

  • Rent
  • Utilities
  • Phones (business phones and mobile phones)
  • Credit card processing – monthly fees (transaction fees are variable)
  • Website service fees
  • Equipment lease payments
  • Office supplies
  • Subscriptions and memberships in professional journals
  • Advertising and promotion, such as social media or ongoing online ads
  • Business insurance
  • Professional fees (legal and accounting)
  • Employee wages/benefits. (This category is somewhat fixed, as you may be able to reduce employee costs at times.)
  • Miscellaneous expenses
  • Business loan payment

Variable expenses: are expenses that will change with the number of customers you work with each month. These may include:

  • Mail, distribution, packaging, and shipping costs
  • Sales commissions
  • Production costs
  • Raw materials
  • Wholesale price of goods to be resold

Step 3: Estimating Monthly Sales

Estimating profits and sales is the most challenging part of budgeting because, for a new company, you don’t have prior financial records to base the estimate on. You may want to create three different sales forecasts:

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