How to Set a Budget for a New Company

By | March 1, 2011

You do not need a degree in finance to create a viable budget for your new business. However, it is important to have a basic understanding of how finances work if you want to create a realistic budget that will help your company achieve its maximum potential. Before you plan a budget for your new business, there are some crucial operational aspects you should consider about your company’s finances.

  1. Set some objectives.
    Performance objectives are some of the first things to consider while setting up a budget. Think about goals that can help your company achieve a specific performance level, sales goal or clientele. For example, a performance objective could be to maintain relationships with 100 regular clients by the end of the calendar year. Don’t forget to set company goals that will help your company maximize its potential return on investments (or ROI).
  2. Clarify confusing industry regulations.
    Before you create an iron clad budget, research the regulations for your profession. For example, meeting licensing requirements oftentimes require payments for insurance premiums and surety bond rates that can catch new business owners off guard. Researching industry regulations before creating a budget allows you to set aside the funds necessary to obtain a business license. Furthermore, having an understanding of the industry can help you make predictions about trends that could have a significant impact on your company’s budget in the future.
  3. Document your company’s progress.
    Establish a way to document how your company’s budget changes over time. This should include all accounts payable, accruedexpenses and existing debt. Accounting and financial record-keeping software program can help you with this process. Before opening for business, create a spreadsheet that will help you estimate the percentage of revenue that will need to be allocated toward materials and supplies. At this stage, you should also include rent, taxes and insurance in the initial budget.
  4. Look for costs that can be cut.
    If you see that your budget if pretty tight, you may need to make cuts to inventory or advertising. You may want to take advantage of flexible payment terms offered by creditors and suppliers. Consider current assets, liabilities and any other pertinent financial information in your budget plan.
  5. Set a review schedule.
    At some point you should set up a schedule to periodically review the company’s budget and compare it to the initial goals you set in your business plan. In some cases, small business owners find themselves planning months ahead due to the market’s volatility. Monitor the company’s long-term financial performance and fluctuating budget by creating daily reports that show you how well you are meeting your goals.
  6. Pay attention to the bottom line.
    Budgeting is essential to the financial management and survival of any business. Business owners must be able to predict potential revenue and match needs for future expenses. Your ultimate goal should be to ensure that enough money is available to keep your business in operation no matter what comes your way.
  7. Be flexible.
    As time progresses, your company’s budgetary needs will fluctuate, and you must be prepared to implement new strategies when necessary. Keep in mind that even though you may plan for the business to generate a particular rate of revenue growth, it is wise to budget for emergency expenditures. This ensures that you will have more than enough cash in reserve should you hit a rough patch and need additional finances to hire help or take on additional projects.

Once you have a firm understanding of the financial aspects that go into making a budget, you can begin setting up a viable business for your new business.

This post was written by SuretyBonds.com as a part of the agency’s Surety Bond Education Program. SuretyBonds.com is an agency that issues bonds to a wide array of professionals nationwide. The agency is committed to helping professionals manage their finances in a realistic manner.