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 believe that getting your spending in order and dedicating the time to drafting a proper budget for your new startup is important, look no further than that one.
If you take the time to properly budget now, you’re mitigating a significant portion of the risk you’re likely to face in the not-too-distant future. If you don’t, or worse—if you assume that you can just “make it up on the fly”—all you’re doing is setting yourself up for disaster. Therefore, if you truly want to make sure that 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 like how 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 certainly look to some similar organizations for guidance and inspiration, be aware that their path is not one for you to rigidly follow. 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, then you can begin the process of figuring 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. At that point, your job becomes making sure you’re spending money in a way that supports those goals first, and everything else second.
As your budget starts to come together, you can even 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 start to better understand things like:
Remember: these 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 make sure you’re prepared to open your doors in the first place.
Get Your Priorities in Order
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 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 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. For the most part, the things that are absolutely necessary to avoid interrupting your business in any way are going to be at the top of your list.
As you move the order of certain budget items around, also 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, we 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.
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