How to Create a Start-Up Budget

In this guide, I’ll show you how to create a start-up budget, calculate your start-up costs and share my start up budget template for you to use. Even when you aren’t sure what your costs will be, I’ll explain how to keep the lights on until your sales are full-flow and plan for the unexpected. After all, if you’re here, it means you’ve got an AMAZING idea for a new business and you know you can totally smash it. That is, if it wasn’t for one thing: MONEY.

The fact you are reading this means you are already taking the numbers side of your business seriously, even if you haven’t set up your business yet. Neglecting them, at any stage, puts all your hard work at risk. Many new businesses overlook the importance of having cash in the bank at the start-up phase. Often they get through the first few months and then, right before launch, they fail.

Why? Because they simply underestimated how much cash they needed to get their business from the idea stage to operating at it’s full potential. In other words, they missed a vital step – creating a start-up budget.

What Are Start-Up Costs?

Start-up costs are all the one-off expenses you are going to need to pay for to set up your new business and ongoing costs you may need to cover until your income reaches full capacity.

Start-Up Budget Template

I’ve created a template that you can download a copy of and use to work through this guide so that at the end you’ll have your own start-up budget.

The template will help you to estimate all the costs it takes to set up your business before you officially start trading. Plus, how much money you need for the months post-launch while you build up your sales.

In the end, you’ll have a total figure that you need to fund to keep your business going and you’ll know how much you need to sell to break-even.

I’ll work through this guide with you, populating it as though I was starting a bookkeeping business from home (only because I’ll always be an accountant at heart so it’s something I understand).

Download the Start-Up Budget Template

Input Your Start-Up Costs

Start-up costs are all the expenses you are going to need to pay for to set up your new business.

Think of these as being the ones you need to pay for before you can open the doors and deliver your product or service.

Business start-up costs generally fall into 2 categories:

  • Start-up assets and;
  • Start-up costs.

Start-up assets are the major items you need to buy before you can even begin to trade or sell your services. Here are some examples:

  • Computer or laptop;
  • Van;
  • Tools and equipment.

Start-up costs are the initial costs that you need to pay to turn the lights on and open for business. They include things like:

  • Legal fees and licensing;
  • Branding;
  • Website;
  • Materials;
  • Stock;
  • Accountants fees (unless you choose to handle your own taxes and registration).

Breaking it down into two categories may sound onerous, but it actually makes it easier for you to identify and calculate your business start-up costs.

Calculate Your Start-Up Assets

Head over to the template.

Write down everything you expect you’ll need to buy to set up ‘shop’. Generally, these are going to be the more expensive items that you absolutely cannot do without.

For example, if you are planning to start a photography business then you’ll need your camera equipment. Alternatively, as I am starting a bookkeeping business from home, I’ll need a laptop to do my work.

As you do this, keep in mind that one of the biggest mistakes a new business can make is wasting money on things they really don’t need.

So dig deep and set your mind to frugal mode by only adding things that are absolutely necessary.

Keeping a Contingency in Your Start Up Budget

You’ll notice in Column D of the template that there is a column called Contingency.

A contingency is a plan for any unexpected or missed costs. Making estimates is hard, and even though you do your best, you may be slightly out with your predictions.

A contingency gives you some wiggle room for these under-estimations.

Of course, your costs may come in lower than you predict, but it’s better to have a cushion rather than running out of money.

In my start-up budget example, I have included a 10% contingency for each costs I have entered.

I chose 10% because that is historically what I have used in past years of preparing start-up budgets for clients. It tends to work well as some costs are over while others are under so things tend to level out.

However, if you have costs that you are finding particularly hard to estimate, then you may want to increase this to 15% or even 20%.

Despite contingency, do your best to research your costs and the types of things you’ll need. The tighter your budget the better.

Calculate Your Start-Up Costs

In addition to buying expensive items like laptops, there are extra costs that need to be paid for in order to open for business.

In my example to start my bookkeeping business, I’ll need to make sure I have everything I to find and deliver work for my first client. As before I have created a detailed list to help me get a handle on my expenses before I start my business. But, as protection, I’ve included a 10% contingency on each of my costs as a buffer.

Your Total Start-Up Costs

You’ll now have a total figure for your start-up costs. For me, that is £3,157. That’s the total cost of everything I need to get me started in my bookkeeping business.

Generally, this is where people stop and they take this number away to work out how they fund their new business. However, a better start-up budget goes one step further.

Include Your Monthly Overheads

It’s rare that any new business starts selling at full capacity from day one. Reaching full sales potential takes time and as work starts to come through the door, overheads still need to be paid.

That’s why the smart way to do a start-up budget is to include overheads for a certain period of time. That way you’ll have enough cash in the bank to pay your running costs and have breathing space to look for work.

Overheads are things that have to be paid, regardless of how much you sell. That’s things like:

  • Rent;
  • Salaries;
  • Insurance;
  • Accounting;
  • Bank charges.

For my start-up budget, I’ve included 3 months worth of overheads, as well as a 10% contingency.

That gives me 3 months to find enough bookkeeping work to start covering my overheads. Depending on your business, you may want to give yourself more or less time.

Your Start-Up Funds

Add up the total of your start-up costs and monthly running costs and you’ll have your start-up budget.

For my bookkeeping business that is £8,809.90 (£3,157 + £5,652.90). This is the amount I need to pay to get set up and give me 3 months to get my turnover at least sufficient to match my expected overheads (break-even point).

How to Fund Your Business Start-Up

Depending on your business idea, you may find that your start-up budget shows you need some fairly significant up-front money to get off the ground.

The most common ways people fund their start-ups include:

  • Personal loans
  • Personal savings
  • Loans from family members
  • Credit cards
  • Business loans
  • Government back loans
  • Crowdfunding

It goes without saying, don’t borrow any money or use your personal savings until you have a robust business plan and are confident about making sales.

If you are concerned, look at ways you are pare your costs right back and start your business for less money. Then take investment at a time when you are sure your business is working.

Using Your Start Up Budget to Check Your Business Idea is Viable

Running a business is one thing, running a profitable one that pays you a salary, is another.

In my bookkeeping business, my monthly running costs are £5,652.90. That means I need to bill and deliver my clients this amount in fees to break-even.

So how many clients do I need to find? And how much should I charge them per hour to cover my costs and make a profit?

Start Up Budget Template

If I estimate that I will work 6 hours per day and adjust for sick leave, holidays and admin time I can see that I need to:

  • Make sales of £23,321;
  • Achieve a minimum hourly rate of £17.67.

I know the bookkeeping market and that, in general, bookkeepers charge out at £15 to £35 per hour, so my minimum requirement is certainly achievable.

That means I know I have a viable business that can pay me a salary along with covering overheads and taxes. I just need to make the sales.

So, don’t just stop at the point where you have the amount of money you need to start your business. Make sure you go one step further and check your business is viable. The calculator is included in the start-up template so have a go at checking yours.

Repaying Your Start-Up Money

Covering your overheads is obviously an important part of staying in business but making a profit to repay yourself for the money you or anyone else has put into your business is another.

However, you plan to fund your start-up you probably will need to repay this money, either on a regular basis or at some point in the future. Even if you use your personal savings, you want to get it back.

If you are repaying any money you have borrowed, include it as a cost in your business. Although you won’t have tax relief, it’ll get picked up as an extra payment you need to cover.

Writing off Your Start-Up Costs Against Your Taxes

In general, your start-up costs will be tax-deductible although there are some nuances.

New business owners find that many of their start-up assets, with the exception of cars, fall under the rules of the annual investment allowance meaning they are fully tax-deductible.

Most monthly expenses will be tax-deductible as well. They fall under the rules of allowable expenses.

You can read more about allowable expenses in this guide and download a checklist to help you decide what you can and can’t claim on your taxes.

Just make sure you keep hold of all your receipts when you start paying for your start-up costs. That way you can check whether you can write them off against your taxes down the line.

Wrapping Up

A start-up budget is the first steps to setting up your business. It’ll give you an idea of how much income you are going to need, what you need to earn to be profitable and is the starting point for your business plan.


About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of - a website full of templates, guides and resources for UK sole traders. No faff. No confusion. Just simple straightforward advice on business registration, taxes and bookkeeping.