Getting to the bottom line: A start-up budget primer | CFIB
When it comes to budgeting, the bottom line is exactly what it sounds like. The term itself is derived from the final figure in the last column and row of an accounting spreadsheet. Are you in the red or are you in the black? In business, that’s an important metric.
So what should you be thinking of when you are budgeting for your start-up? A few considerations:
Go short, go long
Most effective budgets have a short-range, monthly component, and a longer-range, quarter-by-quarter focus that keeps your organizational goals in mind.
The best of both budgetary worlds
Don’t discount the value of the balance sheet vs. the income statement. Many start-ups focus only on the income statement yet budgeting via a balance sheet allows you to hone in on cash flow needs for your entire business (not just related to income and expenses).
Components common to any budget
Sales and Revenues vs. Expenses and Costs (variable, fixed, semi-variable). Fill in the blanks! A good rule to remember is that expenses are often easier to forecast than revenues, since the latter are more of a wild card and expenses are generally within your control. Quite simply, if you don’t spend more than what you budgeted on expenses/costs, you’ll be close to what your budget calls for.
Inject a healthy dose of realism into your assumptions
A budget in many ways is about projecting and forecasting, using history (and your own research and intelligence-gathering) as a rough guide. Always be conservative in your estimates and assumptions. If your start-up took in $100,000 in sales last year, and you’re projecting sales of $1 million for the year ahead, you’d better have compelling evidence informed by objective metrics to support your assumption. In other words, consider over-estimating your expenses and use common sense on revenue projections.
Be a trend-watcher
Know your sales cycles inside-out so you’ll be well-placed to ramp up or down as sales dictate.
Time is also a budget item
Many start-ups overlook or under-appreciate that there is a cost for people’s time, especially when it comes to managing clients. Incorporate a metric into your budget that accounts for time overruns and the implications for your business.
A budget as a living document
Re-visit your budget as often as you can. Ebbs and flows will become apparent and constantly reviewing your budget will give you valuable insight over time so you will become more accurate and proficient at budgeting.
There is no one-size fits all approach to budgeting. Perhaps a more nuanced and even counter-intuitive approach is more appropriate to your unique start-up situation.
It is a best practice to keep the following in mind:
- Everything takes longer to do than you think it will
- Everything costs more than you think it will
- No entrepreneur can think of everything
In the final analysis, there is always one essential business truism that will give you timeless wisdom for your budgeting: You can’t manage what you can’t measure.