4 Essential Steps for Creating and Sustaining a Budget for Your Startup

As the saying goes, “You have to spend money to make money.” But knowing how to spend that money wisely is crucial—understanding the goals, strategies, deals, and whether you can afford them is key.

One of the fundamental steps to business success, or even just getting your venture started, is creating and maintaining a startup budget. It might seem complicated, but this guide will help simplify the process. Let’s dive in.

First, think about what it would take to launch your business. This could mean opening your doors to customers or having a functional website that accepts orders. Whatever your business is, you need to assess the money required to get started—this is your “day one” budget.

Here are some useful categories to consider for your budget:

It’s important to keep things simple when creating your first budget. Don’t overwhelm yourself by breaking down every single expense item. Instead, group similar expenses together. For example, combine meals, entertainment, and travel into one category. This approach will make the process less daunting.

Spend some time thinking about all potential expenses in advance. Using a simple spreadsheet template to organize your estimated startup costs can give you a clear idea of the money needed to start.

Creating a budget begins with a good cost estimate. Don’t overlook smaller costs like office supplies, shipping, and marketing. These seemingly minor expenses can add up and impact your budget significantly. Make a comprehensive list of all fixed and variable costs, accounting for every little detail.

One common challenge for startup founders is not actively looking for ways to save money. While focusing on solving business problems, they often miss opportunities to be frugal, which can improve the business’s survival chances during the pre-revenue period.

Knowing your estimated monthly expenses helps set your first financial goal as a business owner: you need to make enough money to break even. However, estimating monthly revenue can be tricky. Most industries can’t predict exact sales figures for any given month. Revenue patterns might only become clear after a year in business.

Remember that the money generated from sales won’t be collected immediately. For instance, if you estimate $20,000 in sales for a month but only collect 80%, your cash balance will be $16,000. Monthly revenue will fluctuate, and understanding these patterns requires close attention to your numbers.

Cash flow, the money going in and out of your business monthly, is crucial to monitor. It can be even more important than profit. You might generate significant sales but not collect the payments for 30, 60, or more days. If you don’t have money saved, you might struggle to pay bills due before collecting the sales revenue.

Startups often face cash flow challenges, especially during dry spells. It’s advisable to have 6-12 months of emergency cash saved to keep operations running smoothly during such times. The lower your expenses, the longer your runway, so keep an eye on unnecessary costs.

While loans can help during tight months, it’s better to avoid being caught off guard. Reviewing your business performance monthly, rather than waiting for quarters or year-ends, allows you to make timely adjustments if you’re not meeting your budget targets.