For many small-business owners and entrepreneurs, starting the new-business journey without a realistic budget is a risky venture that often ends in company collapse. Of course, startups fail for many reasons, but running out of cash is consistently among the most common. This can be the result of failing to accurately calculate how much money it takes to get started or not knowing how long it’ll take to break even. Poor budgeting can ruin even the most brilliant startup idea.
Use Startup Financial Planning Tools
Knowing the true cost of your startup can help you achieve success—as swiftly and pain-free as possible. Fortunately, a handful of free tools and resources are available online to help you accurately estimate startup expenses and identify your break-even point. The Small Business Administration provides some excellent resources, and Intuit offers a free startup financial planner, which also shows how your business financials stack up against existing businesses in your state and industry.
Avoid Common Business Budgeting Pitfalls
When you’re ready to create an accurate business budget with the financial information you gather on your own or with the help of tools, be sure to avoid common financial-planning pitfalls with these simple steps:
- Know industry standards. Try to stay informed about how other businesses in your industry are performing, especially in terms of revenue and cash flow. You can talk to local business owners, use an online business trends tool or even check the IRS website to find out how other businesses in your field are spending money and performing financially.
- Over-budget. When it comes to allocating resources for current or future expenses, it’s typically better to overestimate costs than underestimate. Sugarcoating the numbers can be tempting, but setting aside more than you actually need—budgeting on the high end—can provide some helpful financial cushion.
- Cut costs whenever possible. When business is thriving and money’s flowing in, spending on unnecessary perks, sticking with current suppliers and technology instead of looking for more cost-effective alternatives, or failing to assess the business need for specific expenses tend to occur. But especially if your business is seasonal with highs and lows at various times of the year, saving money and cutting costs year-round is critical.
- Use your business plan and/or budget as a guide. Losing sight of your initial vision for your company or the budget you carefully developed can spell serious financial trouble. Even if business is sailing along smoothly, it never hurts to review your budget and business plan on a regular basis to ensure you’re on track for long-term success.
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