The difference between your startup and operating budget is like comparing apples to oranges. Your startup budget may include large one-time purchases. It’s also important not to spend too much during the startup phase because it may affect your company’s growth. The operating budget is what your company needs for day-to-day business activities. By prioritizing your expenses you may be able to run a lean, but effective company.
Startup budgets consist of all the costs your company will take on during its initial phases. Generally, these are one-time costs, like land acquisition, infrastructure and incorporation. You should prioritize your costs and only include necessary expenditures relevant to growing your business. For example, a green technology company should spend money on research and development before spending capital on advertising. Investors may scrutinize your startup budget to see if each request is warranted if you’re seeking outside financing.
Designing and building budgets are essential skills for successful entrepreneurs. Your ability to forecast profits while preparing for setbacks can help your enterprise grow rather than stagnate. List all startup-related costs and then prioritize them. Talk to other veteran entrepreneurs in your field and see if you’re missing any important expenditures. Many startup budgets include too many unnecessary expenses like extra laptops for non-essential personnel. Effective startup budgets limit expenses to only crucial ones.
Your operating budget is everything your business needs to function on a daily basis. Operating budgets will include fixed and variable costs. Fixed costs include rent, utilities and supplies. Variable costs include advertising, shipping and sales incentives for your employees. Your operating budget will also include sales projections. Consider expanding and contracting your expenses based on your sales projections. Efficient operating budgets will forecast expenses for six to 24 months, depending on your industry.
Creating and enforcing operating budgets is a critical component to your company’s financial well-being. You should set up separate operating budgets, one based on profitability and the other on cash flow. Your profitability operating budget will include all expenses and projected earnings within a 12-month period. Your cash flow operating budget includes when you can expect to receive payments from your customers. This is critical because many businesses may not collect payment for 30 to 90 days.