How Much Do You Need?

The success of your start-up depends on how accurately you forecast expenses and income in your budget. You'll need two budgets: one for your business and one for your personal expenses. These budgets not only help determine the amount of financing you'll ask for, they're your recipe for keeping your personal life on track while your business lifts off.

Here we give you Idea Cafe's Year Budget Worksheet to figure your expenses and see how much financing you'll really need.

Table of Contents

1. Budgeting Basics

2. Creating Budgets to Determine How Much Financing You'll Need

3. Idea Cafe's First Year Budget Worksheet

4. Rhonda's Tips

5. Resources

1. Budgeting

Understand the difference between fixed and variable costs. Rent, equipment and licenses are fixed costs--they're the same regardless of whether your sales are going up or down. Other expenses, like inventory, advertising and promotion, staff, and salaries (especially yours) may vary depending on the amount of business you have.

Hire the best professional advice you can afford. A good accountant and attorney should become part of your ongoing "team.'' Consider using consultants to help you plan your business, set up your computer system, establish your personnel policies, etc. Expert help may help you make -- or save -- thousands of dollars.

Build in allowances for unanticipated problems. You're bound to encounter slow-paying or non-paying clients, industry downturns, equipment breakdowns and failed advertising campaigns, so add a generous "safety margin'' into your budget: at least 25% and as much as 100%!

Master financial statements. and cash flow statements and balance sheets, as well as average income-and-expenses ratios for dozens of industries, can be found in business books, trade associations and business reference sources, and will help you calculate potential income. These forms look daunting, but chip away at them; it's at least as satisfying as doing your own taxes.

Prioritize your start-up marketing expenses. Attending trade association meetings, networking groups and conferences are good for getting leads and are relatively inexpensive--but will they attract enough customers? Do you need an advertising campaign, brochures and direct mail, all orchestrated by a public relations consultant or a fancy opening party? These costs more and may take a long time to produce results. Choose the mix with your wallet in mind.

As experience replaces estimate, revise your budget. "A budget is a living, growing thing,'' says Mark S. Gottlieb, a CPA in New York City who specializes in entrepreneurship training.

2. Creating Budgets to Determine How Much Financing You'll Need

You need two budgets: one for the start-up costs of your business, and another for personal and living expenses.

Although costs vary widely by business type, you can expect to spend money on certain basic items in every business. But your personal life is yours alone -- study it carefully and weigh what sacrifices you and your family are willing to make. Your child is heading off to college, the kitchen sorely needs a makeover, that gall bladder surgery won't wait and an annual ski vacation is crucial to your spouse's mental health. What's going to give? Start with a budget that doesn't strangle your personal lifestyle.

3. Idea Cafe's First Year Budget Worksheet

Now you can quickly calculate your expenses and determine amount of financing you'll need.

4. Rhonda's Tips

Business Planning Expert Rhonda Abrams offers her tips and insights on How Much Do You Need:

Count on it taking twice as long as you expect to build a sufficient customer base to meet your projected income when you start a new business or new product line, even if you get your first customer right away. Always overestimate costs and underestimate income. This may scare you when you look at the figures, but it will give you a cushion for the unexpected.

Prioritize your start-up marketing expenses. In your first year, concentrate on those activities that will bring you income fairly quickly. Attending trade association meetings, networking groups and conferences are good for getting leads and are relatively inexpensive, and the personal interaction may bring quick results, but they may not attract many customers. Direct mail, brochures, and advertising campaigns cost more and may take a long time to produce results. In my first year in business, I concentrated primarily on networking activities, but I got my best client through a 500 piece mailing to selected potential customers (the printing cost a lot then, but I addressed all the envelopes myself). Choose the mix with your wallet in mind.

5. Resources

For sample financial statements:
Dun & Bradstreet Inc.
99 Church Street
New York, NY 10007
1-800-TRY-1DNB
Industry Norms and Key Business Ratios, $450 for book or CD-ROM for service or non-service industries; $135 for report or diskette on a single industry.
Understanding Financial Statements, a free booklet, is also available from Dun & Bradstreet; call 800-TRY-1DNB.

For industry statistics and financial ratios:
Robert Morris Associates
1650 Market Street, Suite 2300
Philadelphia, PA 19103
215-851-9100
1-800-677-7621
RMA Annual Statement Studies, $165 for diskette, $119 for book on all industries.

For the Robert Morris Projection of Financial Statements form,
widely used in preparing financial statements for business plans:
Bankers Systems Inc.
P.O. Box 1457
St. Cloud, MN 56302
1-612-251-3060

For books on budgeting:
Dickey, Terry. Budgeting For A Small Business (Crisp Publications, $15.95)
Gill, James O. Financial Basics of Small Business Success (Crisp Publications, $15.95)

For the SBA's take on a variety of small biz topics:
Sourcebooks Inc.
P.O. Box 372
Naperville, IL 60566
1-708-961-3900

For free advice from retired business people:
Service Corps of Retired Executives (SCORE)
409 3rd Street SW
5th Floor, Suite 5900
Washington, D.C. 20023-3212
1-202-205-6762

Words You Need to Know * Financing Resources and Help
Back to Financing Your Business Home * Idea Cafe's Home

© Idea Cafe 1996.