For StartUps of all shapes and sizes, budgeting is a necessity. According to data, around 28.2% of businesses set a budget of over £10,000, 26.9% set £1000 - £5000, 24.3% set £0 - £1000, 10.2% set £5000 - £10,000, and 8.9% set no budget. If you want success (why wouldn’t you?!), then it’s really in your best interest not to end up in that 8.9% minority.

How you budget will be crucial to both the short and long-term goals of the StartUp; however, the amount you spend is entirely up to you. It doesn’t matter if you’re in the 28.2% or even 10.2%. But, what does matter is that you create a forecast and financial plan.

So, why is it important to create a forecast?

A budget forecast provides you with a financial view into the future if the budget is followed down to a T. This is perfect for StartUps because traditional budgets require the use of historical data, which you won’t have at hand. It is an extremely useful tool for monitoring and estimating.

You could end up in a predicament where you run out of money by not forecasting. This would seriously derail your StartUp’s development, and, in worse instances, it could completely shut down the business too.

Knowing what to do with money is where most StartUps either fail or succeed. When money starts to roll in, there needs to be a forecast of losses and gains so that you know what you’re working with. If you know you’re going to make a profit, then you can plan ahead to boost your business with others. The long-short of the matter is that a financial plan needs to be created.

How to put a financial plan in place

A financial plan contains a business’s current money situation, long-term monetary goals, and strategies to enact those goals. Therefore, StartUps need to have one in mind if they are to get the business up and running. Consider the following when creating your financial plan:

• Net worth: List any and all assets (home, car, cash etc.) or liabilities (debt you owe).
• Cash flow: Document transactions, add numbers up for a year, divide by 12 for results.
• Priorities: Put all goals in order of importance and understand how to tick them off.
• Retirement strategy: Include one for accumulating the retirement income you need.
• Risk management: Make a plan with reviews of life insurance, property coverage etc.
• Long-term investment: Make a plan based on specific objectives.
• Tax reduction: Strategise to minimise taxes on personal income.
• Estate plan: Make arrangements for the benefit and protection of your successors.

Why is this crucial to the success of a business?

Budgeting enables you to do many things with the business, with the most obvious in enabling you to advance forward. When you need money for assets or anything else, you will be certain it’s budgeted for already. This will keep you out of debt and the business in a healthy state for the foreseeable future.

If there is an emergency in progress, such as the pandemic shutting down your premises, then you can rely on the backup cash you have as part of the budget to keep you stable. Without such a thing, then you could end up like the 1000+ StartUps that ended up filing for either administration, liquidation or dissolution since lockdown officially began in March 2020.

Also, the budget will help shine a light on what you’re doing wrong for those with bad spending habits. If you need 30 versions of the same item, you obviously need to budget!

The information presented in this article is provided as general guidance, it should only be used as the basis for further research or requesting professional advice.