Congratulation! Your ideas might be a productive one and it will become more productive when you will be able to tackle the most Integral part of your start-up i.e. to budget your start-up. You will not have any past information about sales and revenue so, the budget will either based on an educational guess or similar existing companies.
CB, A New York research-based company revealed that 29% of start-up fails due to lack of funds or shortage of cash. Most of the start-ups fail due to negative cash flow and negative working capital and loss revenue model. As a result, Budgeting becomes an Important factor for the start-up.
Budgeting will help you in the following ways:
– Profit / Loss
– Break-Even point
– Attracting Potential Investors
Lists your Expenses:
Categorize your expenses into two parts
Capital Expenses: This is incurred when a business spends on its fixed assets to improve existing assets or to purchase new assets. The basic requirements of a start-up can be
Furniture and Fixtures
Intangible assets such as Licence
Operating Expenses: This is incurred when the business spends on a day to day activities and can be also termed as Working Capital. The operating expenses are:
Website service charges
Interest on loan, if any
Forecasting the Sale:
This plays a vital role when you are starting any business because this will either result in profit or loss for your business. There are different ways to forecast such as:
Bottom-up Forecast: It is better to go with a bottom-up forecast rather than a top-down forecast. As you start thinking about the number of customers you can go for advertising either in the form of paid media or print media. Once you contact them you can think about the number of customers you expect to reach out to you and make a purchase.
20000 people see your ad.
2000 people visit your ads.
200 people end up purchasing.
Intuitive Forecasting: The best you can do is that hire the sales team. The most trustable resource for your sales prediction. They are the ones who will give you accurate data about sales.
Start with units not with revenue: Predict sale in units’ whatever business you are, the product you are going to offer such as a meal, the services you will provide like an hour of consulting. This gives an idea about the volume of the sales so that it can be easily converted into monetary terms.
There are many such forecasting methods will discuss it in a separate writing.
Once you have forecasted the sales of your product/service, it will become easy to be calculated in numbers:
Sales = No. of units sold * Price per unit
Break-even point = Total Cost = Total Revenue (where there is no loss and no profit
Profit/Loss = Total Sales – Revenue (Negative number indicates losses)