Getting to the bottom line: A start-up budget primer

ss_budget_148327298_jpgWhen it comes to budgeting, the bottom line is exactly what it sounds like. The term itself is derived from the final figure in the last column and row of an accounting spreadsheet. Are you in the red or are you in the black? In business, that’s a pretty important metric.

So what should you be thinking of when you are budgeting for your start-up? A few considerations:

Go short, go long
Most effective budgets have a short-range, monthly component, and a longer-range, quarter-by-quarter focus that keeps your organizational goals in mind.

The best of both budgetary worlds
Don’t discount the value of the balance sheet vs. the income statement. Many start-ups focus only on the income statement, yet budgeting via a balance sheet allows you to hone in on cash flow needs for your entire business (and not strictly related to income and expenses).

Components common to any budget
Sales and Revenues vs. Costs (variable, fixed, semi-variable) and Expenses. Fill in the blanks! A good rule to remember is that expenses are often easier to forecast than revenues, since the latter are more of a wild card and expenses are generally within your control. Quite simply, if you don’t spend more than what you budgeted on expenses/costs, you’ll be close to what your budget calls for.

Inject a healthy dose of realism into your assumptions
A budget in many ways is about projecting and forecasting, using history (and your own research and intelligence-gathering) as a rough guide. Always be conservative in your estimates and assumptions. If your start-up took in $100,000 in sales last year, and you’re projecting sales of $1 million for the year ahead, you’d better have pretty compelling evidence informed by objective metrics to support your assumption. In other words, consider over-estimating your expenses and use common sense on revenue projections.

Be a trend-watcher
Know your sales cycles inside-out so you’ll be well-placed to ramp up or down as sales dictate.

Time is also a budget item
Many start-ups overlook or under-appreciate that there is a cost for people’s time, especially when it comes to managing clients. Incorporate a metric into your budget that accounts for time overruns and the implications for your business.

A budget as a living document
Re-visit your budget as often as you can. Ebbs and flows will become apparent and constantly reviewing your budget will give you valuable insight over time so you will become more accurate and proficient at budgeting.

There is no one-size fits all approach to budgeting. Perhaps a more nuanced and even counter-intuitive approach is more appropriate to your unique start-up situation.

Jeff Magnusson, CEO of Playerize, a Vancouver and San Francisco-based company that manages a growth and monetization platform for game developers and advertisers, writes a blog on start-up management. He suggests re-thinking traditional budgeting so that it’s “agile” and thus capable of adjusting using real-time input. As his post cheekily suggests, “budgets are a waste of time.”

When in doubt, you can always use the three laws of start-ups as your guiding focus for budgeting:

  1. Everything takes longer to do than you think it will
  2. Everything costs more than you think it will
  3. No entrepreneur can think of everything

In the final analysis, there is always one essential business truism that will give you timeless wisdom for your budgeting: You can’t manage what you can’t measure.

Check out this free budget template specifically geared at start-ups, which is available for download through Intuit Quickbooks to get you started. It’s already pre-populated with line entries and descriptions, which can orient your budgeting process in terms of what elements to consider. Or visit their small business-oriented web portal to see some additional budgeting software.

Microsoft Money is another option for small business budgeting, although the software is no longer produced commercially (a free download is still available from Microsoft). Sage Accounting has start-up specific offerings, as well.

For a host of other free Excel-based budgeting templates and dashboards, check out what Skilledup has compiled. Something for everyone’s budget (in that they are all free).

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