When starting a business, many people neglect to create a proper business plan and budget. Others create a preliminary budget to get approval for a loan but fail to create a budget for day-to-day operations.

Budgets are necessary for a startup to reach its financial goals and ensure it isn’t spending more than it’s making. Read on for steps to saving money on a budget for your startup, and how to create a budget that works.

Determine your upfront costs

When you start a business, you may have one-time expenses that are necessary to get you up and running. For example, you may put a down payment on a property or hire a designer to create your website and visual branding elements. These are required for creating your business but don’t really fall under any recurring cost categories or regular expenses.

You may decide to differentiate this part of your budget so you can determine regular cost trends vs. upfront costs.

Determine your fixed costs

Your fixed costs are what it takes to run your business month after month, in the form of a flat rate. This may consist of rent or mortgage payments, monthly internet fees, subscriptions to online tools and payroll software: whatever costs the same month over month. When putting together your budget, there isn’t a lot of room to move on your fixed costs.

The benefit of highlighting your fixed costs is having a tangible number to keep in mind when thinking about how much money you need to keep the lights on. In this case, quite literally, as your electric bill is likely a fixed cost.

Estimate your variable costs

Variable costs are a little harder to predict, especially when you’re just starting. Consider the different expenses you might incur while running a business, such as stationery, consulting fees, raw materials, shipping, and anything that’s required to keep the business moving forward but changes from month-to-month is a variable cost.

Technically, your one-time costs also fall under this umbrella. Variable costs are often easier to work with when trying to make cuts to improve your margins. You may also find that your budget for variable costs changes once you’re operating for a while and see expenditure patterns.

Create a profit and loss tracker

Creating a profit and loss tracker, more commonly known as a P&L, helps you track your budget against how much money you’re bringing in. Your budget tells you exactly how much money you need to succeed. From there, you can use it as the foundation for your marketing plan, which will help you target and attract customers.

You can make a simple P&L using accounting software or with a spreadsheet program. It doesn’t need to be an overly complex model, just enough to keep track of where money is going and how often it’s coming in.

Use your budget to set limits and goals

Now that you know what to expect in terms of expenditures, set a limit for spending each month based on your calculations and ensure that the business sticks to it. You may need to adjust your monthly limit accordingly if you have a low-income month or discern seasonal patterns within your business.

Having a budget also creates a baseline on which you can grow. Aiming to increase your monthly income and budget year after year by a certain percentage will give you the direction you need to drive your business. In this way, spending money to make money is employed effectively and intelligently.

Creating a budget is simple and straightforward, with various templates being available for free online. Having a proper budget in place can help your business get approved for loans to help your business grow even more.

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