KEY POINTS\r\n\r\n \tCategorizing your costs is an excellent way to identify cash-burning projects rather than cash-generating projects.\r\n \tResearch other businesses in your industry to gauge sales in your first few years.\r\n \tRemember that you're not the expert at the end of the day - so talk to a pro.\r\n\r\n\r\n\r\n\r\n\r\nWhat happens when you put two creatives in a room and tell them to build a budget for a small business? It sounds like the beginning to an accountant\u2019s bad joke, but it\u2019s a puzzle I\u2019ve been solving ever since my business partner and I decided to expand our blog into an e-commerce site.\r\n\r\nWe both have marketing backgrounds, which means we have excellent experience with spending money, but not so much with balancing budgets. We\u2019ve each had to tighten up, buckle down, and do some serious research on how to strategically tackle the big cash flow problem that faces most businesses like ours.\r\n\r\nSo as a small business owner, how do you plan your expenses when you\u2019re still pre-launch? And how do you predict the cost of running a business when so many factors involved are unpredictable? It\u2019s all part of what I\u2019m learning along the way.\r\nWhy You Need A Budget\r\nIf you\u2019re planning on seeking funding at any point, it\u2019s important to closely track your finances. As you may have learned from watching Shark Tank, entrepreneurs that don\u2019t understand what\u2019s going on with their company\u2019s finances end up looking completely out of touch with the inner workings of their organization. No bank or investor will want to shell out cash for a business that\u2019s historically clueless when it comes to money.\r\n\r\nOn the most basic level, creating a budget gives you an excellent blueprint for forecasting the financial success of your business. With a smart and accurate budget, you can set monthly goals, set aside cash for marketing opportunities, predict cash flow challenges, and minimize risk. A budget will also help you surface your monetary issues. You might realize, for example, that your business partner could afford to cut back on fancy networking lunches.\r\n\r\nA good budget will help you stop living in the world of maybe and start living in the world of definitely when it comes to realizing your company\u2019s financial potential.\r\nComponents Of A Budget\r\nAll budgets can be boiled down to calculating expenses, revenue, and anticipated profit. Here are the basics you\u2019ll be working with:\r\n\r\nExpenses & Costs: What costs will you need to incur to get your business off the ground? Determine fixed costs (web services, office rental fees, salaries) that you can rely on accruing every month, in addition to variable costs, when will you need to replenish inventory, and what you want to spend on marketing.\r\n\r\nSales & Revenue: Estimating your sales can be a seriously daunting task without a benchmark. When I made the plan for my business, I looked first at our site\u2019s current traffic and bounce rate, and did some close reading on conversion rates in my industry. I looked at my maximum potential revenue based on how much inventory I\u2019m carrying and how much I can replenish every few months if necessary.\r\n\r\nWhile I\u2019d love to believe otherwise, selling out every month is not my most likely future. With that in mind, I took a hard look at my numbers and made a conservative estimate about what percentage of my inventory I need to sell in the first few months of business to stay profitable. From there, I put together a ballpark figure that I regularly adjust as the actualized numbers come in post-launch. It\u2019s a lot of guesswork, but it gave me a stronger sense of realistic expectations and goals.\r\n\r\nProfit: This is what it\u2019s all about! Put your projected profit in your budget so you can work daily to make your business profitable as quickly as possible. Visualize! Manifest! Then set sales goals to make it happen.\r\nStructuring Your Budget\r\nYou can structure your budget on a monthly, quarterly, or yearly basis. For baby businesses like mine, monthly is the safest bet. Because cash flow is critical and spending needs to be carefully managed, a monthly budget allows my small team to identify critical fluctuations as they occur, so we don\u2019t spend too much too fast.\r\n\r\nWhile we\u2019re only a two-person team without an actual departmental structure, we divided our company budget amongst \u201cdepartments.\u201d Then, we looked at all of our expected fixed expenses and potential variable expenses, and decided how they would be assigned to our departments. Marketing includes all outside partnerships and networking events. Creative gets hit with the cost of creating video and visual content. Operations takes on our office expenses and shipping costs. By creating mini department budgets within our larger company budget, it\u2019s easier to quickly assess where the bulk of our money is going, and where we can cut back.\r\n\r\nAs your expenses start coming in, you should consistently update your spreadsheet with realized costs, and calculate the difference between your anticipated and actual cost. If you\u2019re coming in hot with loads of over-budget expenses, you\u2019ll be able to swiftly modify your cash allocation to plan more accurately for the future.\r\nTools & Tips For Planning In Year 1\r\nMaking a budget is easy when you have a previous year of business to reflect on. But when you\u2019re starting from square one? Not so much. If you\u2019re stuck on where to begin, try a few of these tips to get started:\r\n\r\n\u2022Chat with someone in your line of business: Seek out a colleague who runs a similar business. They don\u2019t need to be a direct competitor to have experience relevant to your own. What unexpected expenses did they incur in their first year? What was their biggest financial hurdle when starting out? Were there areas where they could have spent less in retrospect?\r\n\r\n\u2022Take advantage of free tools: Nobody ever claimed that managing a small business was an easy task. Don\u2019t be timid about utilizing tools to help you track your finances. Microsoft offers free budget templates for Microsoft Office that can simplify the process of making your own. Also check out Personal Capital\u2019s Cash Flow Tool. It categorizes your purchases so that you can quickly see where your money is going. Sort your expenses by category, date, or merchant to get a detailed look. It does most of the work for you, so that you can update your budget without spending a lot of time sorting through transactions.\r\n\r\n\u2022Talk to a pro: No matter how much reading I do about finance, I\u2019m never going to be as proficient as a professional. Consider booking a consultation with an accountant to make sure your business is on the right track. If you rely on a professional financial advisor or tax preparer for your personal finances, talk to them about your business too. They might have some insights that you haven\u2019t considered.\r\n\r\nWhile I was initially intimidated, I\u2019ve discovered how empowering it is to meticulously track and manage my organization\u2019s finances. So much of starting a business is laden with uncertainty, risk, and anxiety. Despite the fact that I\u2019m constantly adjusting my financial plan, having a plan at all alleviates some of the uncertainty. I feel more in control of my success and more accountable to my failures.\r\n\r\nAs with most things in life, knowledge is so much better than ignorance. Learning is so much more fruitful than remaining overwhelmed. And help? It\u2019s truly only a phone call or web search away.