When pursuing our entrepreneurial careers for the first time, most of us believe that having a unique business idea will set us apart from our rivals. Unfortunately, staying competitive in the highly overcrowded business world is not that simple. It is followed by uncertainty, which usually stems from your financial worries. Namely, apart from the costs of starting a business, you also need to ensure that your business remains competitive in the long-run.
Precisely because of that, you need to build a solid budget plan to keep you focused on your priorities.
Understand the types of your business’ costs.
There are different types of costs entrepreneurs face when starting a business. Of course, to estimate your cash flow and secure the funds for your startup, you need to understand the nature of your expenses. Here are a few types of costs you should keep in mind:
- Fixed costs, such as your rent, internet, or bank fees, are charged the same from month to month.
- Variable expenses change in proportion with the direct product sale. They may include transportation, marketing, or commissions.
- Essential costs are the ones critical for your company’s development, such as website development or investing in the right equipment.
- Optional costs include nonurgent investments you should make only if the budget allows.
Build a business plan and calculate your expenses.
Now that you know what types of costs there are, you need to see how they work in practice. To understand the costs of starting a business, you first need to build a business plan that will keep you on track. Make sure you analyze your market, research your target audience and competitors, assess the demand for your products, and see what strategies work or don’t work in your industry.
There are several critical questions every powerful business plan should answer, including:
- What is the market need my product aims to satisfy?
- How will my product meet my customers’ needs?
- Who is my target audience?
- What sets my startup apart from the rest?
- How big is the market I’m entering? Is it expanding or shrinking right now?
- Who are the biggest players in my niche?
- How much money do I need to start my business?
- How to assess my business’ success?
- How many people am I going to hire?
Once you answer these questions, the next step is to calculate how much your initial business investments will cost. Of course, these expenses depend on your needs. According to Foundera, the costs of equipment for startups are somewhere between $10,000-$125,000, while payroll takes up about 25-50% of your total budget.
On the other hand, the costs of building your online presence depend on the practices you’re investing in. If you’re running an ecommerce store, the costs of your site will depend on the platform you choose and who you hire. Let’s say you’re building a Shopify store. You need to hire a team of developers, UI/UX designers, and SEO specialists, equip them with the right tools, and provide them with the right training. As this is an extremely expensive move to make, many online businesses choose to hire a Shopify agency and outsource their website development and optimization efforts. The same goes for digital marketing practices such as SEO, PPC, or content marketing.
Estimate your monthly sales.
This is one of the most challenging aspects of the budget planning process, as you don’t know you’re your startup’s sales will be. Do extensive research, read studies and case studies by other people in your niche, and keep track of industry trends. Given that there is no actual data you can rely on, there are three different sales projections you may take into consideration:
- Best case scenarios, which are basically your most optimistic sales predictions.
- Worst case scenarios that will prepare you for potential turbulences in your sales.
- Likely scenario is, as its mere name says, the realistic one.
When estimating sales, keep different factors in mind, such as late or failed payments or seasonal changes, to make your projections as reliable as possible.
Choose the right financing methods.
Now that you’ve made your cash flow projections and identified your business’ major costs, you need to choose the right funding method for your company. Now, one of the simplest ways to get off the ground is to use your personal savings or ask friends and family to help you. However, what if bootstrapping is not enough to grow your business or cover your startup’s rising costs? This is why you need to secure some additional funding options ahead of time.
In the overly competitive landscape, where most startups fail during the first few years, estimating your young business’ success is almost impossible. Precisely because of that, you should avoid taking out massive bank loans that will shackle you for the next 10 or 20 years. Choose bank loans with reasonable rates or opt for some simpler (and safer) funding options like crowdfunding, applying for a government grant, connecting with an angel investor, taking out a loan for equipment or even teaming up with another aspiring entrepreneur in your niche.
Keep calm and start small.
Entering entrepreneurial waters is exciting, but try not to get carried away. Use the steps mentioned above to make rational, data-backed decisions and focus on investing in those aspects of your job that really matters. Surround yourself with the people, choose a smaller office over a fancy once, and focus on building a strong online identity to put yourself in front of the right customers. Invest in SEO, create engaging stories around your brand, and personalize your customer support.
Remember, no one expects you to become the next Google in the first year.
Author: Usman Raza is the co-founder of Christian Marketing Experts and marketing strategist working with various brands online, and the content marketing manager of PSDtoWPService and BISE Pakistan. He is devoted to helping small businesses bridge success gaps by providing in-depth, actionable advice on digital marketing, SEO, and small business growth. Follow him on Twitter @usmanintrotech.