Your Business Needs a Budget!
Starting a business and watching it grow is always an exciting time! When you decided to start your business you knew there’d be a lot to think about, including the numbers. Even if you don’t consider yourself a “numbers person,” it’s still extremely important to build a budget (or as we like to say, forecast). Here are a few things that I think every entrepreneur should consider when building out their forecast.
5 Things Entrepreneurs Should Think About When Building a Forecast
1. Realistic new product budgets
Yes, as an entrepreneur you are optimistic, but for a base case, you have to focus on cash needs. Build an upside case and let your optimism OUT. For the base case, focus on what you are 110% sure of. If you are using sales forecasts from a sales team – take a haircut, then give it an extra trim.
2. Space and overhead
Entrepreneurs often think about people growth and headcount, but they forget about other things like where to put those people or the cost of benefits, laptops and other perks. Oh, and overhead! Eventually, someone has to manage these people that isn’t you!
3. Other expenses
As your company scales and grows there are things you can no longer do without. For that reason, I always do a 10% – 15% of expenses buffer in other expenses. It covers you if you forgot something!
4. Budgeting for commissions and bonuses
If your business has a sales model at all, don’t forget about commissions along with your latest commissions plan. Bonuses seem like an after item if we do well, but rarely are budgeted for – and they can have a big impact on cash. For that matter, don’t forget pay raises! You want to keep top talent? They’ll want a raise someday.
5. Travel and entertainment
This is one that can sneak up on you when you are a small team and getting your first few clients. Sure, you may not have to travel or spend a lot to get that revenue, but as you grow and go to conferences and have a dedicated sales team, these expenses to creep up on people.
Bonus tip: Historical data
Never forget to look at historic data – at least the last 12 months. There are once a year expenses and period expenses that may not be top of mind when you are building your budget. Having the last 12 months of financial data on hand when making a budget can bring these things to the forefront of your mind.