Introduction
Any new business must build its own roadmap, otherwise it is just like doing a project without a plan, and the results might be disastrous – it is good as not doing business at all. Creating a start-up budget is building a roadmap for a project or business. This is the most delicate and complex for a starter businessman/woman, but it is the wisest move to make. When you build a roadmap, you are anticipating possible problems for a business that is still unclear, which means you are looking ahead. A business owner must look beyond years, must be a visionary in order to be able to deal with something that seems to be unsolvable. With a roadmap – a start-up budget – you are seeing the problems/conflicts before they happen. Establishing a start-up budget is the first and most delicate part of starting a business, because this is what the owner should base his/her next moves that seem to be blurred from the beginning. Without a start-up budget, the new business owner is like walking in the dark.
So, how should an aspiring business owner do it? What are the approaches, content and steps in doing a roadmap?
First, the business owner must know that he/she is dealing with money to be spent in the future, and any move and activity will need finances in order to be accomplished. The business will hire people, purchase equipment, provide products and services, and so forth. Any error or false move might multiply costs, so the moves have to be properly planned in the roadmap, which has to be incorporated in the start-up budget.
Money is the lifeblood of this new organization that must be worked and planned for a smooth flow of operation until it earns to provide a return-of-investment for the owner. All these are part of the start-up budget. For a small business, the start-up budget is used to purchase buildings, equipment and the needed resources for products and services in business, including salaries for the personnel (Ristau, 2008).
What is critical in a start-up budget? A start-up budget is actually a budget plan. The owner plans what to do and he/she lists down the activities and finances needed to accomplish them. Finances, well-trained personnel, building and equipment for the daily operations are critical because without these resources, there will be no business to operate. First are the personnel and management to keep the business operating smoothly; next are the money, building, and resources for business. Intangible things can point to expertise of management and personnel.
A start-up budget is different than an established business budget because initial activities, just as in any other endeavour, are always difficult. Before a business can sell or provide services and operate smoothly, it must have the necessary materials and supplies and, of course, proper documentation. Licensing, training of personnel, including advertising and information dissemination to the market segment the business is targeting are necessary prerequisites. These start-up needs, no matter how small, can cost quite an amount. Ristau (2008) suggests that it can cost up to thousands of dollars.
On the other hand, an established business budget is a known annual budget for an already smooth-running business. It is the result of good planning by experienced managers and personnel. An established business means it has a targeted audience already patronizing the product or service; the management knows the difficulties of the operation and how to deal with problems and conflicts that might be encountered along the way. A new business has to identify first its target segment, and the product will have to fit to this segment.
While most studies on success of start-up businesses focused on the amount of start-up capital, little attention has been given on the source of capital (Cassar as cited in Au & Kwan, 2009). In Chinese entrepreneurship, family members have become a source of start-up capital, at the same time they play a critical role in the success of the business. Other sources of start-up capital can be friends and neighbors. These two groups – family and friends and neighbors – are investors of new businesses that influence the success of the business. Banks and institutions providing loans can help, but it may take a little while before the new business owner can acquire loan as there are requirements to accomplish.
The most critical resource for a new business, the procurement of capital, facilitates the acquisition of additional resources: physical, human, and technological. Primary factors in capital procurement, in addition to gender and ethnicity, include business characteristics such as sector, size, age, and location (Coleman, 2000; Haines et al., 1999; Orser et al., 2006 as cited in Gaines, 2011). Other factors in capital procurement include entrepreneurs’ education, skill set, and human capital, like training and networking.
In creating a start-up budget, the business owner is figuring out how much money is needed relative to the money that is already at hand in order to make the business run smoothly for the time being. This start-up budget can be used as supporting document for applying a loan in a bank or any financial institution (Quickbooks, n.d.).
There are steps to follow in developing a start-up budget. The owner must list down the potential income and expenses; collect appropriate business information for the listed income and expenses; provide calculations based on income and expenses listed, and the possible net income or loss; and explain the above information to the personnel, or finance people, who will make decisions regarding finances (Dlabay, Burrow, & Kleindl, 2012). In developing a start-up budget, finance officers in the company should know that budgets reflect the financial plans and forecasts of business.
A completed start-up budget template
The start-up budget above presents a standard technology, start-up business. Changes can occur depending on the size and the type of business.
Conclusion
Creating a start-up budget is one of the most challenging activities in establishing new business venture. In this essay, we provided the steps to doing a start-up budget and built a completed start-up budget, along with capital costs. The challenges and hurdles that a new business will encounter can be a fruitful experience for a future business career.
References
Au, K., & Kwan, H. (2009). Start-up capital and Chinese entrepreneurs: The role of family. Entrepreneurship: Theory & Practice, 33(4), 889-908. doi: 10.1111/j.1540-6520.2009.00331.x
Dlabay, L., Burrow, J., & Kleindl, B. (2012). Principles of business (9th ed.). Boston, MA: Cengage Learning.
Gaines, O. (2011). African American women entrepreneurs’ experience obtaining financial capital for business start-up (Doctoral thesis, Capella University). Retrieved from http://ezproxy.sothebysinstitute.com:2195/pqdtglobal/docview/870955419/fulltextPDF/8CAA29B0FFD04273PQ/2?accountid=13957
Quickbooks: Essential small business financial tools: Free startup budget template and guide. (n.d.). Retrieved from http://quickbooks.intuit.com/r/budgeting/essential-small-business-financial-tools-free-startup-budget-template-and-guide/
Ristau, R. (2008). 21st century business: Intro to business. Mason, OH: South-Western, Cengage Learning.
