Creating a Budget for Your Startup: A Step-by-Step Guide for Entrepreneurs

E-commerce, or electronic commerce, is the buying and selling of goods and services over the internet. E-commerce businesses use online platforms, such as websites and mobile apps, to connect with customers and facilitate transactions.

These businesses can range from small, independent retailers to large, multinational corporations. E-commerce has become increasingly popular in recent years, as it allows businesses to reach a wider audience and offers consumers the convenience of shopping from anywhere with an internet connection.

Here is definitive guide to understand the process to create a budget for E-commerce business

What is Startup Budget ?

A startup budget is a financial plan that outlines the projected expenses and revenues of a new business. It is used to determine the amount of capital required to start and operate the business, as well as to track the business's performance and make adjustments as needed. A startup budget typically includes estimates of one-time expenses, such as legal fees and equipment purchases, as well as ongoing expenses, such as rent and payroll. It may also include projected revenue and any other sources of funding, such as loans or investments.

A startup budget is an essential tool for managing a new business's financial health and ensuring its long-term viability.

Why Startups Should Create a Budget ?

There are several reasons why a startup should create a budget.

First, a budget can help a startup manage its expenses and allocate its resources more efficiently. This can improve the chances of the startup succeeding and achieving its goals.

Second, a budget can help a startup plan for the future and make decisions about how to invest its money and time. This can help the startup grow and become more successful.

Finally, a budget can help a startup attract investors, as investors will often want to see a well-planned budget before they decide to invest in a startup.

How to Make the Most of a Business Startup Budget

A startup budget can be used to help business owners understand how much money they need to get started and how much they need to cover expected business expenses over time.

Founders should always be aware of the amount of capital required to bring their company to life and help it grow. Budgets are an essential component of a business plan, are required to obtain a business loan, and are an essential component of your fundraising deck.

Each industry vertical has its own set of standard expenses and milestones for growth. Here are a few examples of milestones and associated costs for a SaaS business:

• Forming the company — legal fees, business registration fees, purchasing a domain name, website hosting fees, and so on.
• Creating the minimum viable product (MVP) — hardware, talent, initial hosting fees, and so on.
• Ongoing business expenses include things like office space, cloud hosting servers, CRM/sales software, bookkeeping/accounting support, cap table management, payroll and employee benefits, and so on.
• Growth - Paid advertising, social media marketing, trade shows, industry associations, recruiting and retaining talent, and so on.

How to Create a Budget for E-commerce Business?

Here are the steps to prepare a startup budget for an e-commerce business:

1. Identify your Business Objectives and Target Market

Understanding your business goals and the market you are targeting will help you determine the resources and expenses needed to achieve those goals.

2. Estimate your Revenue

Next, you need to have a rough estimate of how much money you can expect to bring in each month. This can be based on past sales data if you have any, industry trends, or market research.

3. Develop a Sales and Marketing plan

This plan should include the strategies and tactics you will use to reach your target market and generate sales, as well as the associated costs, such as advertising and marketing expenses.

How much should be marketing expenses for Startup?

Well, It all depends. You might not be concerned about pounds and pence, dollars and cents. Marketers aren't necessarily budgeting experts, and the final say will fall to the CEO - or someone with the letters "C-" in their job title.

However, you will bear some responsibility for how the money is spent. As a result, it's critical that you're given a reasonable budget.
There are two major factors influence your marketing budget:

1. Understand your annual revenue (either estimated or gross). Recommend to make your marketing budget a % of revenue, so you should know what you're up against.
2. Consider the age of your company. To accelerate growth, newer businesses should invest more in marketing.

4. Determine your Operating expenses

Operating expenses are the costs associated with running your business on a day-to-day basis, such as rent, utilities, payroll, and insurance. Carefully estimating these expenses will help you understand the cost of maintaining your business.

5. Identify your One-Time Expenses

One-time expenses are costs that are not incurred on a regular basis, such as legal fees, website development, and equipment purchases. These expenses should be accounted for in your budget to ensure that you have the necessary funds to cover them.

6. Develop a Financial Plan

A financial plan is a detailed projection of your income and expenses over a specific period of time. This plan should include both your projected revenue and your estimated expenses, as well as any other sources of income, such as loans or investments.

7. Review and Revise your Budget

Your budget is a living document that should be reviewed and updated regularly to reflect changes in your business and the market. As your business grows and evolves, your budget should be adjusted to reflect these changes.

8. Seek Advice from a Financial Advisor

Preparing a startup budget can be complex, and it is always a good idea to seek advice from a financial professional to ensure that your budget is accurate and comprehensive. A financial advisor or accountant can provide valuable insights and guidance to help you develop a budget that meets your business needs.

Step by Step Guide to Prepare a Startup Budget

Step 1: Gather your tools and set a target budget (Can refer our template or any software)

‍Step 2: List your essential Startup Costs. Startup costs are the expenses and assets purchased before launching your business. (e.g, Assets are furniture, laptops etc. and expenses are rent, salary etc.)

‍Step 3: Determine your Fixed Costs for runining business (Fixed cost are cost which will have to incurred irrespective of revenue earned by the startup for e.g, Rent, Salary, Travel Cost etc.)

‍Step 4: Determine your Variable Costs for Running Business (raw material, ad spends, travel, promotional expenses etc.)

‍Step 5: Calculate your Monthly Revenue of MRR

‍Step 6: Tally up your total costs, then review and adjust

Also Read Detailed Blog on How to Prepare Startup Budget in 6 easy steps (read here)

How to Track Startup Budget?

Here are some steps you can take to track your startup's budget on a monthly basis:

1. Identify your startup's fixed and variable expenses. Fixed expenses are costs that remain the same each month, such as rent and salaries. Variable expenses are costs that can fluctuate from month to month, such as advertising and materials.
2. Create a spreadsheet or use a budgeting software to track your expenses. This can help you see where your money is going and make it easier to make adjustments as needed.
3. Set aside money for contingencies. It's important to have some extra money available in case unexpected expenses arise.
4. Monitor your spending carefully. Review your budget regularly and make any necessary adjustments to stay on track.
5. Compare your actual expenses to your budget. This can help you identify areas where you may be overspending and make changes to improve your financial situation.

Overall, the key to tracking your startup's budget on a monthly basis is to be organized, proactive, and consistent. By following these steps, you can better manage your finances and increase the chances of your startup's success.

Startup Budget Template

If you’re just starting out and taking the Google Sheets approach to budgeting, check out this free template. We’ve broken it all down for you in one simple-to-use sheet.

Download Your Startup Budget Template Here

‍

‍FAQ's

Q: Why is a budget important for a startup?

A: A budget is important for a startup because it can help the company manage its expenses, allocate its resources more efficiently, plan for the future, and attract investors.

Q: What are some fixed expenses for a startup?

A: Some common fixed expenses for a startup include rent, salaries, and insurance.

Q: What are some variable expenses for a startup?

A: Some common variable expenses for a startup include advertising, materials, and travel.

Q: How can a startup create a budget?

A: To create a budget, a startup should identify its fixed and variable expenses, create a spreadsheet or use budgeting software to track its expenses, set aside money for contingencies, and monitor its spending carefully.

Q: How can a startup track its budget on a monthly basis?

A: To track its budget on a monthly basis, a startup can compare its actual expenses to its budget, identify areas where it may be overspending, and make changes as needed to stay on track. It's important to be organized, proactive, and consistent in order to effectively manage the startup's finances.

Are You Ready to Create Your Startup Budget?

‍Aside from spreadsheets, if you're unsure how to proceed or are uncomfortable creating a budget on your own, seek assistance! At Jordensky, we help early- to growth-stage startups manage their day-to-day business finances, including budget creation and management.  

All customers get access to a Jordensky Finance Dashboard, which displays their company's financial figures in interactive, real-time reports like operating expenses, net burn, revenue, cash position, and more.

Also Read

The Ultimate Cheat Sheet on Budgeting V/s Forecasting | Jordensky