Every new business needs to have a budget in place to help manage costs. Start-up costs for a new company can be considerable depending on the industry you’re setting up in and the type of business you are opening.
But how do you budget for a business that isn’t yet trading?
Know Your Expected Turnover
It can be tricky to determine a turnover for your first year of business, but you should have a figure in mind that is feasible to achieve based on your research and experience. Keep it conservative, as this will help you determine other operations costs and the rest of your budget.
Consult with your accountant or financial advisor to help you get an accurate figure to put a decent budget in place.
What Equipment Do You Need
Next, you need to know the costs of any equipment you need to get up and running. Again, avoid blowing the budget by buying more than you need; you simply need to get started, and then you can reinvest down the line if you need to expand. Keep it to the bare minimum, and then once you get an idea of how things will be running, you can reassess what you need and take it from there.
Licences, Insurance and Taxes
Don’t forget to add in the costs for any licences you need to purchase, memberships or trade unions and insurance premiums you might need. This includes public liability insurance for land or your business, whether virtual, cyber insurance, business interruption insurance, sole trader insurance, etc.
Remember to consider how much you will pay in taxes and national insurance each tax year, as this will take a chunk out of your profits.
You need to know your monthly costs to run your business and what to expect each month. When setting a budget, you need an idea of what you’re paying out for, including rent, wages, business rates, supplier services, raw materials, software expenses, insurance premiums, etc. If you know what to expect, you can ensure you have the funds available in your budget to cover these for however long you might need to. It is suggested you have around 6 months at least worth of expenses to cover operations in the event you don’t make a profit immediately and to ease the pressure.
Create A Contingency
You will need a contingency fund for running costs like the one mentioned above. While you need to cover running costs, you also need a contingency fund to account for unforeseen fluctuations in expenses, an underestimate of how busy you might be to purchase more equipment, to cover repairs or emergency costs, etc. This is especially important if you aren’t likely to make a profit from day one, and unexpected costs would cripple you before you even get going.
Preparing a budget for a new business can help you keep costs under control and plan out what your first few months or first year can look like financially. Keeping detailed and organized spreadsheets can give you a way of tracking where your money is going and how much you are spending in the run-up to opening.