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How to Create a Start-Up Budget for a Small Business

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You’ve got an idea for a business, you’ve researched it and you’re feeling confident that it could work. 

But now you’re wondering how much it costs to set up your business, how you’ll pay for it and whether it is actually profitable.

Well, a start-up budget is the first step you need to take when it comes to finding an answer to all those questions.

Setting up a business is so much more than just buying some equipment and hoping customers find you. 

Set up marketing, making sales and getting paid all takes time and money. So even if you don’t plan to write a full business plan, putting together a start-up budget will help get you prepared. And, if you are going to write a business plan, you’re going to need some of the numbers in this document.

In this guide, I’ll tell you more about start-up budgets, share my business start-up cost template spreadsheet and give you examples of start-up costs to help you calculate how much it will cost to set up your business.

What is a Start-Up Cost

Start-up costs are expenses associated with setting up a new business. Generally, these are costs that need to be paid for before a business can open and are one-off, rather than recurring.

For example, a self-employed photographer would need a camera and equipment before being able to deliver their services. 

What is a Start-Up Budget

A start-up budget is an estimate of all the costs it takes to set up a business before you officially start trading. 

Although not strictly essential, it is common practice to also include an estimate of running costs for a certain period of time after launching for 6 or 12 months. 

Including these monthly costs will give you an idea of how much money you’ll need to keep going while you build your new business up and how much you need to sell to breakeven.

Unfortunately, it is all too common for small business to fail because they don’t have enough cash in the bank to keep going while they search for sales.

Examples of Start-Up Costs

Business setup costs generally fall into four categories. Breaking it down into each category will make it easier for you to identify and calculate your business startup cost.

The four categories are:

  1. Startup assets
  2. Startup costs
  3. Monthly fixed costs (overheads)
  4. Monthly variable costs

Here are some examples of each to help you get started identifying all the setup costs for your new business:

Startup Assets Definition and Examples

Startup assets are the major items you need to buy before you can even begin to trade or sell your services:

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

Startup Costs Definition and Examples

These are initial costs that you need to pay to open for business. They include:

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

Monthly Fixed Costs Definition and Examples

Your monthly fixed costs are also known as overheads. These are expenses that, regardless of how much you sell, will need to be paid for:

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

Monthly Variable Costs Definition and Examples

Your monthly variable costs are things that you pay for as and when you need them.  So if you don’t sell anything you won’t need to buy these things. Here are some examples:

  • Raw materials;
  • Sub-contractors;
  • Stock;
  • Marketing;
  • Commissions.

Start-up Budget Template

I know that planning for a new business can feel overwhelming. So here is my startup costs template for you to fill out. 

It contains the four main start-up costs categories for you to populate.

Tips on Completing the Start-up Costs Template

Before you get started here is some advice for you to keep in mind:

  • Take your time filling it out. If you rush you’ll miss costs which could be disastrous when working out your funding or give you a nasty shock once you have started setting up;
  • Your numbers are going to be based on estimates which can make things tricky. Do your best to figure out what your costs will be by researching and speaking to suppliers or other people who run their own businesses;
  • Round up your estimated expenses to allow a little contingency for anything unexpected and to create a buffer;
  • Add a round sum amount for miscellaneous expenses to cover you for anything unexpected;
  • Multiply your monthly running costs by 6 or 12 months and add this to your total start-up costs to give you the comfort you can run for a certain period of time to build up your income, with cash in the bank.

Once you have the total figure for how much it takes to set up and run your business for 6 or 12 months start analysing your numbers. 

How to Analyse Your Start-up Budget

Ask yourself questions like:

How will you fund your business set-up?

Some businesses have fairly low setup costs. But others require a significant up-front investment.

Regardless look at how much you’ll need to spend to get your business off the ground and running for 6 or 12 months and consider where this money is going to come from.

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.

Can you sell and confidently deliver sufficient work to cover your monthly costs on an ongoing basis?

Running a business is one thing, running a profitable one is another. Take a look at your monthly running costs and work backwards to decipher how much you’d need to sell to cover your costs – this is known as the break-even point.

If you are service-based, is this an amount you can reasonably deliver on your own? Or would you need help?

If your business is product-based, can you manufacture and sell the amounts you to in order to cover your monthly costs?

Will you make sufficient profit to get back or repay 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.

Can You Write off Start-Up Costs Against Your Taxes?

In general start-up costs are tax-deductible, although the treatment can vary according to the type of expense.

Start-up assets usually fall under the rules of the Annual Investment Allowance. But your monthly fixed and variable expenses will be deductible according to when you pay for them or are invoiced (depending on the method you choose for claiming for them).

The most important thing to do is to make sure you keep hold of all your receipts even if you aren’t sure whether you’ll go ahead with your new business or not. But by keeping the receipts you’ll give yourself the flexibility 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.

Next, I’ll help you understand more about break-even and setting sales targets, then you’ll be ready to move onto writing a business plan.

Updated 29 December 2019

Anita Forrest
About Anita Forrest

Anita is a Chartered Accountant with over a decade of experience taking self-employed business owners from financially confused to business savvy. She is the creator of the ‘Go Self Employed’ website, which is her corner on the internet where she makes self-employment less terrifying.