Planning a startup budget
Posted: Sun Dec 22, 2024 8:43 am
In an ideal world, our budget should be an accurate prediction of the future, foreseeing costs, income, eventual contingencies, unforeseen events, losses and all kinds of eventual inflows or outflows of money. However, since we are not fortune tellers, events always occur that we cannot foresee. It is also natural that experience teaches us which are the most probable events that can occur and modify the movements of money that we had budgeted, or that by knowing the operation in greater detail, we realize the true cost of the actions associated with the budget items.
If it is the first time we are planning a budget, it is important to mentally go through the entire process we want to budget. For example, if we want to hold a sale at a municipal fair for Christmas, we first imagine the different costs we may have, and add them to the budget.
Production costs
Production costs are everything associated with the production of our product. If, for example, we sell cacti in pots with beautiful arrangements, we must consider things like:
Cost of cacti
Cost of flower pots and decorative elements
Cost of soil for flower pots
Hours of work in putting together cactus arrangements (transplanting to pots, australia number for whatsapp decorative arrangements).
It is important not to neglect the costs of “man hours” invested in production. Even if we are the ones who are going to do this work ourselves, it has a cost that we should consider. Sometimes we hear questions like, “Why should I consider it if it is free for me?” Because it is time that we could be using to work on another paid activity. Also, if in the future I need someone else to do it because I am busy with administrative aspects of my business (such as managing the fair stand), I will need to pay someone to do it, and I must budget for it.
Logistics costs
In addition to production costs, we must consider the logistical costs of the fair, and everything related to setting up our products at the fair and producing the final sale, such as:
Cost of the stand (if the fair requests any contribution in exchange for setting up at the fair)
Cost of the physical space we will use (renting a table, buying a tent and/or a floor if necessary, tablecloth, etc.)
Cost of transporting the products and implements necessary for sale (vehicle rental for transportation, or gasoline)
Transaction cost: if any non-free collection system is used
Working hours of the seller who is at the stand
Thus, we must go through the different categories related to our business (for example, there are activities that involve a lot of administrative work, so it would be necessary to include an “administrative costs” dimension with all the activities related to this).
Forecasting sales
Once we have budgeted all the costs by making an imaginary journey through the entire production and sales process, we must also forecast the possible sales we will have. This is always more difficult than the costs, because it depends on many factors that we do not know, such as, for example, the flow of people at the fair, the competition within it, the willingness to pay of the attendees and many other variables. Therefore, for this part, it is good to try to gather as much information as possible (on possible attendance at the place, type of buyers, etc.). If we have already participated in similar fairs before, considering similar sales for this occasion (if the conditions are maintained) with respect to a past fair can be a good approximation.
Unforeseen events
After considering sales revenue, it is always good to consider a percentage of the total budget to cover possible unforeseen events. This item is important because we are not fortune tellers, and situations may occur that we had not contemplated and that we have to solve in order to carry out the sales activity. These percentages will depend on the type of activity and possible unforeseen events that must be covered. An example of an unforeseen event is a cost that we did not consider due to an error in anticipation (such as, for example, having to pay for lunch for the vendor at the fair) or situations that were impossible to foresee (loss of cacti due to problems with transplanting).
Conservative view
Once our budget is complete with all the direct costs of the project or activity (i.e. all the costs and revenues that are identifiable and attributable to the activity in question), we can make a decision as to whether the activity or project is profitable or not. It is important to maintain a “conservative” position when budgeting possible costs/revenues. This means that if we do not know exactly how many people will buy from us, we should consider (for the budget) a less favorable scenario, but always leaving the least room for speculation (i.e. gathering as much information as possible).
If it is the first time we are planning a budget, it is important to mentally go through the entire process we want to budget. For example, if we want to hold a sale at a municipal fair for Christmas, we first imagine the different costs we may have, and add them to the budget.
Production costs
Production costs are everything associated with the production of our product. If, for example, we sell cacti in pots with beautiful arrangements, we must consider things like:
Cost of cacti
Cost of flower pots and decorative elements
Cost of soil for flower pots
Hours of work in putting together cactus arrangements (transplanting to pots, australia number for whatsapp decorative arrangements).
It is important not to neglect the costs of “man hours” invested in production. Even if we are the ones who are going to do this work ourselves, it has a cost that we should consider. Sometimes we hear questions like, “Why should I consider it if it is free for me?” Because it is time that we could be using to work on another paid activity. Also, if in the future I need someone else to do it because I am busy with administrative aspects of my business (such as managing the fair stand), I will need to pay someone to do it, and I must budget for it.
Logistics costs
In addition to production costs, we must consider the logistical costs of the fair, and everything related to setting up our products at the fair and producing the final sale, such as:
Cost of the stand (if the fair requests any contribution in exchange for setting up at the fair)
Cost of the physical space we will use (renting a table, buying a tent and/or a floor if necessary, tablecloth, etc.)
Cost of transporting the products and implements necessary for sale (vehicle rental for transportation, or gasoline)
Transaction cost: if any non-free collection system is used
Working hours of the seller who is at the stand
Thus, we must go through the different categories related to our business (for example, there are activities that involve a lot of administrative work, so it would be necessary to include an “administrative costs” dimension with all the activities related to this).
Forecasting sales
Once we have budgeted all the costs by making an imaginary journey through the entire production and sales process, we must also forecast the possible sales we will have. This is always more difficult than the costs, because it depends on many factors that we do not know, such as, for example, the flow of people at the fair, the competition within it, the willingness to pay of the attendees and many other variables. Therefore, for this part, it is good to try to gather as much information as possible (on possible attendance at the place, type of buyers, etc.). If we have already participated in similar fairs before, considering similar sales for this occasion (if the conditions are maintained) with respect to a past fair can be a good approximation.
Unforeseen events
After considering sales revenue, it is always good to consider a percentage of the total budget to cover possible unforeseen events. This item is important because we are not fortune tellers, and situations may occur that we had not contemplated and that we have to solve in order to carry out the sales activity. These percentages will depend on the type of activity and possible unforeseen events that must be covered. An example of an unforeseen event is a cost that we did not consider due to an error in anticipation (such as, for example, having to pay for lunch for the vendor at the fair) or situations that were impossible to foresee (loss of cacti due to problems with transplanting).
Conservative view
Once our budget is complete with all the direct costs of the project or activity (i.e. all the costs and revenues that are identifiable and attributable to the activity in question), we can make a decision as to whether the activity or project is profitable or not. It is important to maintain a “conservative” position when budgeting possible costs/revenues. This means that if we do not know exactly how many people will buy from us, we should consider (for the budget) a less favorable scenario, but always leaving the least room for speculation (i.e. gathering as much information as possible).