When you’re thinking about launching a new small business, you need to set your budget in advance. If you’ve never run your own enterprise, you might not be aware of all the hidden traps.
That’s why it’s crucial for every rookie entrepreneur to do their homework before setting off for this business journey. The next five paragraphs are some of the important tasks of this homework. When you read them, you’ll know the basics of budgeting prior to launching an SMB.
1. Calculate your initial revenues
Let’s start with an assumption that you’ve landed several long-term clients and projects before you’ve decided to go your own way, business-wise. A part of the same assumption is that you’ve negotiated the terms and conditions of these collaborations, including the price.
So, the first thing you should do is to keep track of your entire business revenues, not only your profits. Sum up all the amounts that your clients are going to pay you monthly. This number is the total sum of money that your business will have at disposal for overhead costs, unexpected expenses, taxes, and social security payments.
As you actually start working and accepting new projects, keep tracking the additions to these initial revenues. It’s vital to factor in every cent coming into your venture to be able to adequately manage your financial assets.
2. Define the fixed costs
Different businesses have different fixed costs. For instance, an SMB owner working alone from home will cover most of their overheads by paying their home bills.
On the other hand, new entrepreneurs who rent an office or hire additional staff will need to count on much higher expenses. If you still haven’t done that, put all your costs on the paper. If your revenues won’t suffice to keep your head above the water if you rent an office, don’t do it. You can work from home in the beginning or find a co-working space. After all, many top-notch companies were founded in garages and basements.
Only when you’ve defined your fixed costs should you move on with your expenditure.
3. Factor in variable expenses
Writing down all the costs that need to be paid every month is only a part of the budgeting process. As a new entrepreneur, you don’t know what surprises are waiting for you behind the corner. For instance, your computer might break down or you can suffer a data loss. Home-based owners might have issues with their installations and experience some downtime due to such issues.
Because of that, you need to take into consideration the potential variable expenses. Depending on the size of your business and your goals, you should make an emergency fund or even two such saving models. One could be used for core business tasks, while the other one could cover unexpected expenses.
For instance, putting aside 10% of your revenues into this fund or these funds is a good start. That way, you won’t have to borrow from banks or other lending institutions in the case of emergency.
4. Specify employment and equipment
The size of your business and your niche will dictate the employment type you’re going to opt for. If you’re a one-man band who does everything alone, you won’t have to bother with these things. Hiring a freelancer or two for larger projects will help you get through more intensive periods without any significant additional costs.
However, if your kind of business requires hiring employees from day one, plan every single recruitment in detail. Be aware that every permanent employee incurs costs in terms of taxes and other costs. Depending on the country you live in, you might have to pay for their social and health system contributions, as well.
That’s why the most affordable solution for new SMB-owners is to opt for part-time workers and freelancers. Only when you land profitable projects that require special commitment should you go for permanent, full-time employees.
5. Plan the marketing expenditure
There’s no business today without marketing. Every new SMB-owner needs to promote their business to generate their first leads and new clients.
The largest number of modern businesses goes for online marketing. It’s the most efficient and least expensive form of marketing.
For instance, promoting your business on social media is free of charge, unless you want to launch special paid campaigns. And even in that case, they’re not expensive and every SMB-owner can afford at least the basic ones.
Also, your business website deserves a special place in your online promotion. As the central place of your marketing campaign, it needs to be easy for its visitors. As the experts from a Web design company in Houston put it, a business website doesn’t have to be complex, but it needs to provide the right information. In line with that, plan to do some testing before you launch the website.
Last, but not least, include all the marketing expenses in your budget to see if you can cover all the desired aspects.
Accurate financial planning is the key to success for new SMB-owners.
This includes calculating your initial revenues and your fixed costs. Apart from that, you need to take into account unexpected expenses, as well as the employment costs and your business equipment. Finally, you need to plan your marketing expenditure to promote their venture. When you tick all these boxes, you can say that you’ve formed a sustainable budget for your new venture.