4 Key Factors to Consider When Establishing a Start-up Budget

5 Key Factors to Consider When Establishing a Start-up Budget

Budgeting for a start-up that doesn’t exist yet can be quite the challenge, especially for a business owner who doesn’t have a great deal of experience operating within a specific industry. Fortunately, there are certain aspects of business budgeting that are relevant in almost all endeavours, so you don’t have to be a specialist to guide your company in the right direction financially.

With that said, here are four key factors that every entrepreneur should consider when establishing a comprehensive start-up budget:

1. Electricity & Gas

Since the vast majority of businesses models simply aren’t viable without access to a reliable source of energy, the cost of electricity and gas should be a primary consideration. This is a particularly important area of budgeting for companies that will be operating out of a physical location as opposed to conducting business fully online, as running a brick-and-mortar venue will always come with significant energy needs.

You can compare prices for business gas and electricity using platforms like Utility Bidder to centralise quotes. That way, you’ll be getting the best possible pricing in your region while also obtaining a ballpark figure for your monthly energy costs.

2. Payroll Expenses

If your start-up isn’t going to be a solo effort, you’ll need to be realistic about how many employees you’ll need to get started and how much you’ll have to pay each one per week. It’s usually best to budget for one or two extra employees beyond the amount that you think you’ll need – just in case you wind up being inundated with work during an initial rush. You may also want to learn how to calculate your full-time equivalent employee (FTE) number.

3. Marketing & Promotion

Any start-up that isn’t effectively promoted will face a sub-optimal rate of growth and expansion. Thus, it’s imperative that you allocate a decent budget towards your initial marketing campaign. Creating widespread brand awareness and generating leads are the two most pivotal improvements to invest in during the momentum-gaining stage, as a slow start may deter prospective clients, investors, and partners.

4. Inventory & Equipment

Of course, you’ll also need to carefully consider any inventory and equipment that your start-up will need in order to operate efficiently and effectively. Many novice entrepreneurs tend to underestimate costs in this department because they think they can get by with the bare minimum in the beginning.

However, setting aside a generous amount for this section of your budget is a better approach to ensure that you’re not dipping into company revenue to fund orders later on.

5. Allocating a Backup Reserve

Regardless of how much budgeting you do, there will always be the possibility of encountering unforeseen money mishaps. The chances of needing to dip into a backup reserve are even higher for start-ups because the business hasn’t been around long enough to reliably predict every expense.

As a rule of thumb, it’s best to allocate a backup reserve of at least 50% of your overall monthly budget to ensure that you’ll have access to cash flow during difficult times. Generally, the larger your reserve, the more resilient your company will be to financial challenges in the early going.