Budget to start a business

[Ideatesters]

Hi All, I am just wondering if there is a simple formula to use to calculate the money I need to start my business?
I understand that there are a lot of business costs that are dependent on the exact business I am opening.
I would like to hear from anyone with experience in opening a business do you calculate the amount of money I need to open a business as a percentage of the amount of sales I expect to generate in the 1st 12 months??
I know how easy it is to buy lots of nice to have things but how do I define what is neccessary??

[Army of One]

This is how you do it:

1. Open Microsoft Excel
2. In column A list all the items you will need to get your business through to making its first sale.
3. In column B put an amount beside each item required for the set up
4. SUM (looks like a funny E) column B to get a total
5. Times your total by 2 and you should be pretty close

I am serious, believe it or not it will actually work out to be pretty close!

My point is that you need to do your research and be very very honest with yourself. The numbers will not lie unless you let them.

I recently heard a fantastic quote which may help put this in perspective:

...the mechanics of running a business are really not very complicated when you get down to essentials - you have to make some stuff and sell it to somebody for more than it cost you.... that's all there is to it, except for a few million DETAILS!

Have fun!

[Digiwise]

I don't think a percentage of sales would give you a meaningful figure unless you were considering the cash flow implications of holding stock.

I started my business last year with about $2,000 to cover establishing companies, trusts, accountancy fees, etc plus another $2,000 or so to cover first month's rent, desk, chair, printer, etc plus using my own assets like my laptop.

The best "formula" is a budget, and to determine startup capital required you will need a budget system that will produce cash flow information. If you are unsure about this I think the first step is to find a good accountant.

Clancy

[SheInspires]

Yes, it really does depend on what sort of business you have - selling products, services or IP etc, whether you need an external office, shop or studio or can work from home etc.

I really liked the idea of the excel worksheet and the comment about letting numbers lie - very true.

Recently I read that Crazy Phones' first shop had 2nd hand carpet used in the fit out and thought that's the sign of a smart business owner who was putting business ahead of ego.

I consulted with a client who got all caught up in the excitement of getting his dream business off the ground and lost sight of where the money was. He forgot to do what he was great at - being a sales man - and kept spending with less and less money coming in. He lost his business.

Now I've had a business for years I have a much better idea of where I need to spend my money and where to save my money because cashflow is paramount to success.

If you're going to spend money then it needs to make money. If it isn't going to make money then think carefully about why you need to spend it. Not everything is a profit centre but if it isn't then invest wisely and without ego into it.

All the best,
Belinda