- Learn what questions you should ask yourself to determine your long-term business goals.
- Discover how building a budget can help you build a better understanding of your business.
- Learn the fundamentals of a "Day One" budget.
- Find out how getting your spending priorities in order can help you meet your long-term goals.
- Consider how adjusting your budget can impact short- and long-term goals.
According to a recent study conducted by U.S. Bank, over 80% of all newly formed businesses that ultimately fail do so due to cash flow problems. If you needed a reason to get your spending priorities in order and dedicate the time to drafting a budget for your new startup, Fiducial can't think of a better one than that.
If you properly budget now, you’ll mitigate a significant portion of the risk you’ll face in the future. If you don’t, or if you assume you can “make it up on the fly," you’re setting yourself up for disaster. Want to make sure you have the budget you need to continue to build the business you’ve always wanted? There are a few key things to keep in mind.
It begins by looking inward, not outward
Maybe the most critically important thing for you to understand is that there is no “one size fits all” approach to creating a budget for your startup. Just as it’s fair to say that nobody does what you do quite the way you do it, that same unique quality must extend into the world of budgeting for your SMB.
Every business is different. So, while you can look to similar organizations for guidance and inspiration, you don't have to rigidly follow their path. You need to start the process by taking a look at your long-term business goals. Where are you today, and where do you want to be in a year or five years from now? What are the steps you need to take to help you accomplish that? What are the mile markers you’ll need to hit along the way? Once you have the specific answers to these questions, you can begin to figure out what budget is most appropriate for your small business.
Once you contextualize everything through that lens, many of your priorities will easily reveal themselves. Your job becomes making sure you’re spending money in a way that supports those goals first, and everything else second.
Beginning a budget
As your budget starts to come together, you can use it as an opportunity to learn more about the business and the way it operates. Once you can better identify how much money you have on hand and where it’s going, you will better understand things like:
- The actual money you’re spending on labor and other materials necessary for your products and services.
- Your overall costs of operations.
- The level of revenue you’ll need to generate to support your business moving forward.
- A realistic idea of how much money you can expect to make in terms of profit, and when.
As you work to come up with a budget more specific to your growing startup, you also better understand how that startup works. At that point, you’re in a position to make accurate, informed decisions about things like hiring or materials spending. You can also go back and reconfigure your budget to account for any trends or patterns that you’ve discovered. This cyclical process is also a great way to make sure that you always have the cash necessary to take advantage of opportunities as quickly as possible, even ones that you didn’t necessarily expect.
The “Day One” Budget
As an example, let’s say you’re planning a budget for a business that hasn’t technically gotten off the ground yet. Your priorities are a bit different as you’re essentially trying to make “Day One” possible. Again, every business is going to be different from the next. But, there are a few key things you will want to focus on to make sure your opening goes as smoothly as possible.
- Facilities costs – Where, specifically, are you going to be doing business? Do you need to rent a storefront? Are you working out of a commercial office space? Will you need a warehouse or other logistical assets? Regardless of which one best describes your situation, you’ll need to think about some things. Consider security deposits, any cosmetic or structural changes you need to make to the building, and even things like signage.
- Fixed assets – Also commonly referred to as “capital expenditures,” these are the first things you'll need to do to get the job done. This includes thinking about purchases like work vehicles (if applicable). You also have to buy furniture and other equipment like computers. After all, your people will need a place to work.
- Materials and supplies – Costs in this category would refer to several things. You'll have immediate needs like office supplies, but also those needs related to marketing and other promotional activities. You’re going to need a steady stream of all of these items to hit the ground running.
- Miscellaneous – These are all the other costs of physically opening a business that doesn’t fall into the other three categories. You’ll need to work with an attorney and likely a financial professional to make sure the back end of your business is in order. Depending on your industry, you may need things like licenses and permits—those cost money, too.
Get Your Spending Priorities in Order
Remember: the points listed above aren’t necessarily the costs associated with running your business in the long term. These are just the things you’ll need to take care of to be prepared to open your doors in the first place. So, let's talk about the long-term.
From a longer-term point of view, another key thing you’ll need to do to organize your spending for your newer, growth-focused startup involves getting your spending priorities in order. Yes, expenses like those outlined here are going to remain important. But those are all about meeting short-term needs. To meet your long-term needs, you need to be judicious about where you spend your money and, more importantly, why.
For the best results, try to prioritize expenditures that actually generate revenue or some type of sizable return on investment in the future. If your startup depends on a particular piece of equipment in order to successfully churn out the product the company was founded on, it stands to reason that: A) buying that equipment and B) paying to maintain it and keep it in proper working order would be top spending priorities as you literally cannot function without it. The more products you can produce, the more you can sell—and thus the more revenue you can generate.
Go through all of your expenses and try to arrange things in order of importance. Generally, the things that are absolutely necessary to avoid interrupting your business will be at the top of your spending priorities.
Consider the short-and long-term
As you move the order of budget items around, be thoughtful of both the short- and long-term implications of that move. If you prioritize Factor A over Factor B, what chain of events could that cause? If you choose not to focus on computer maintenance and instead move funds elsewhere, what issues would that potentially cause? Are you in a business where slower or more outdated equipment would hurt productivity and your ability to serve your customers? Because if you are, that’s a move you might want to re-think.
Yes, creating the right budget and organizing your spending priorities for your newer startup can feel complicated and time-consuming. But this is absolutely one of those situations where “getting it done” is less important than “getting it right.”
If you feel as if you’re having a hard time completing something this essential on your own, Fiducial can help. Not only can we help create a budget that supports your startup as it exists today, but we can also guarantee that you’ll be ready for the business it becomes tomorrow, too.
We're here when you're ready to sit down and talk about getting your business started the right way. Call us at 1-866-FIDUCIAL or make an appointment at one of our office locations to speak with a Fiducial rep. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!