Your budget. These two seemingly simple words have the power to make you cringe at best or fall onto the floor in a crying, miserable heap at worst.
There is no way around it — creating a budget can be intimidating. Then, making sure your company follows the budget can be stressful and endlessly frustrating.
The reality? You have to spend money to make money. But the key question is…
How can you keep your start-up in check without blowing through your savings?
As a fashion-based business, how do you tackle this age-old dilemma? The easiest way to think about your budget is to break it down into three different types of expenses: start-up expenses, fixed expenses and variable expenses.
Startup expenses can be thought of as any expense made to get your company operations up and running. First, think about the mandatory costs needed to get your company off the ground. What additional expenses are needed to support your business during the early years? Examples may include research required to develop your business venture, early advertising and marketing, or the cost of your inventory for the first year of business.
A fixed expense is defined by investopedia.com as an expense that is paid independent of a company’s business activity. Rent, employee compensation, insurance, and loans are all fixed expenses that must be accounted for in your budget.
Variable expenses are exactly that — they vary depending on a company’s output, as defined by investopedia.com. A variable expense could be any costs needed to complete a project, the cost of shipping goods, and taxes. These are all costs that may shift depending on a particular product, order or project.
When segregating your expenses, it is typically best to overshoot your costs, just to be safe rather than underestimate and fall short. Also make sure that your books are well kept and organized. As difficult as it may be to forecast future sales, doing so is crucial to determining the reality of your budget. Once revenue is estimated, you then will be able to backtrack your expenses and determine the health of your business.
Creating your budget is half the battle. This foundational task is just as important as it is to revisit your budget, often, and make any changes or revisions demanded by your company’s progress. By doing so, you can track and analyze the growth of your business. Your budget will give you an honest look at the state of your business and the direction in which it is headed.
A business’s budget is the financial backbone of its business plan; without one, there is little financial direction and virtually no chance of long-term survival. But, with a sound budget and adherence to fiscal reality, you can create achievable goals and a sensible path to success.