Good Budgeting for a Better Business

Determining your new business’s budget is challenging.

But our friends at Brex know a thing or two about startup budgets. This outline shows starting budget reference points for startups with a similar burn rate, which gives you a place to start! Without knowing exactly what you need and not relying on past data, you may find yourself staring at an empty excel file.

Startups burning less than $25K per month*

ADS ………………………………… $6,530
SOFTWARE …………………………. $1,857
SERVERS …………………………… $2,603
TRAVEL ……………………………. $2,572
EVENTS …………………………….. $1,050
RIDESHARE …………………………… $479
COWORKING ……………………….. $1,839

Startups burning between $25K and $50K per month spend*

ADS ………………………………… $4,243
SOFTWARE …………………………. $2,126
SERVERS …………………………… $3,765
TRAVEL ……………………………. $3,765
EVENTS ……………………………… $1,119
RIDESHARE …………………………… $525
COWORKING ………………………. $2,042

Startups burning between $50K and $100K per month spend*

ADS ……………………………….. $15,034
SOFTWARE ………………………… $3,001
SERVERS …………………………… $6,052
TRAVEL ……………………………. $3,525
EVENTS ……………………………… $1,170
RIDESHARE ……………………………. $631
COWORKING ……………………….. $2,199

Startups burning between $100K & $250K per month spend*

ADS ……………………………….. $13,935
SOFTWARE …………………………. $4,155
SERVERS …………………………….. $7,151
TRAVEL ……………………………. $7,083
EVENTS …………………………….. $1,595
RIDESHARE …………………………… $666
COWORKING ……………………….. $4,201

Step 1: Creating a healthy Budget

Creating a healthy budget is the next step to aligning your business to your industry and goals with these reference points.

Keep runway in mind as you budget. While many experts recommend an 18-month runway while fundraising, having cash for at least three months’ expenses will allow you to build your business, test theories, and potentially make pivots.

In the early days, expenses are easier to predict than revenue, so you’ll want to start by outlining your business’s essential costs. Setting an upfront budget goal will help you stay on target as you tally up your must-have and nice-to-have purchases.

Step 2: List your Essential Startup Costs

List out everything you’ll need to establish your business and start selling.

There are two kinds of startup costs you’ll need to account for:

Startup assets: These are one-time purchases of liquid and non-liquid assets like inventory, computers, furniture, vehicles, property, and security deposits. Keep in mind that startup assets, also called capital expenditures, aren’t tax-deductible.

Startup expenses: These are the fixed or variable expenses that you pay before opening. Rent and payroll, for example, are considered to be startup expenses before you launch. Startup expenses are tax-deductible.

Other examples of startup costs include office space, organizing fees, trademarks, and patents.

Break down each expense where possible. For example, you won’t pay a lump sum for “website costs.” List a web domain, content management system, online shopping cart, design, photos, and anything else you may buy separately.

Step 3: Determine your Fixed Costs

The next step is to estimate your fixed costs, also known as overhead costs. These are business expenses that essentially remain the same each month.

A new company could have monthly costs like:

  • Rent or mortgage
  • Payroll and benefits
  • Business insurance
  • Website hosting
  • Internet and phone services
  • Professional services
  • Bank fees

Don’t forget to budget money for spending related to each fixed cost. For example, hiring an in-house social media specialist requires more than a salary and benefits. They’ll need equipment for the job, like a desk, laptop, and marketing software. Review this list of business expense categories for more examples of fixed costs.

Step 4: Estimate your Variable Costs

Variable expenses increase or decrease in response to your sales and production, so they don’t typically have a set monthly cost. As you scale up, these costs generally go up, and vice versa.

Here are some examples of variable costs:

  • Raw materials
  • Advertising spend
  • Utilities
  • Equipment
  • Shipping costs
  • Business income taxes
  • Transportation
  • Travel and events
  • Freelance services

New business owners can request quotes from manufacturers, contract workers, and third-party logistics providers (3PLs) for many of these costs. Or, use industry averages. Consider how time of year and season affects each cost, too.

With both fixed and variable expenses, round up to give your budget some realistic padding. For example, if a subscription service is $17.26, you could allot $18-$20. Some experts suggest doubling or tripling estimates for categories that tend to fluctuate, like marketing and advertising or legal services.

Step 5: Calculate your Monthly Revenue

Next, you need to forecast your earnings for each type of income source. Without past sales data for your business, it’s best to create at least two sets of revenue projections: an optimistic forecast and a conservative projection.

Use your customer personas to estimate how often they’ll buy your goods or service. Consider factors like your total addressable market, potential market share, and current market conditions. You can also derive a monthly sales estimate using your break-even analysis. Be realistic about any factors that could limit monthly revenue growth.

Here is a list of potential revenue and funding sources:

  • Product or service sales
  • Business or corporate credit card
  • Loans
  • Savings
  • Investment income

Now, let’s determine whether your startup costs and operating expenses match your initial target budget.

Step 6: Tally up your Total Costs, then Review and Adjust

Add your monthly cost estimates into your business budget template and calculate how much you’ll need to get started. Hopefully, you’ve built-in padding for overspending and emergency funds.

It’s normal to assume some deficit spending in the early months of a new business. But if your budget goal sounded significantly better on paper, you can make adjustments before borrowing more capital.

Go back through your expenses and label each item as necessary (must-haves) or discretionary (nice-to-haves). Decide which costs you can eliminate, reduce, or save for later, starting with discretionary costs.

Can you go without a project management tool or use the free plan? Are a public relations (PR) consultant really necessary in the early launch phase? Can you start in a coworking space and find used office equipment?

Good Budgeting for a Better business

A startup budget is the first line of defense for an early-stage business. It’s a flexible action plan that lets you adapt to changes and anticipate cash shortfalls. And if you take the time to make a well-defined budget, you already have the edge on two-thirds of the competition.