Budgeting in a startup company

Budgeting is an important part of every business but particularly challenging during the startup phase.

Budgeting

Budgeting is a central task for all companies. For young entrepreneurs, however, budgeting is particularly difficult. Because during the startup phase both costs and revenues are still difficult to estimate, accurate planning is not easy. The budget is to serve to estimate the expenses and revenues and thus make the long-term development of the company plannable. In case of doubt, it is advisable to budget cautiously and define the expected expenses a little higher and the hoped-for revenues lower. One danger that exists in budgeting is that a young entrepreneur is guided by the initial euphoria and lets pure wishful thinking flow into the financial plan. In particular, the top-down approach, in which a company derives its own market share from the market volume, is dangerous. The development of the economy also often flows too little into budgeting. Caution is advised if the budget assumes constant economic growth.

It is important that the budget and the associated further planning are consistent. Otherwise, uncomfortable questions from investors may arise.

The basis of a budget are always the presumed expenses and the presumed returns of the following year. For an already long-established business, this is easier since it can rely on historical data. When estimating costs, it is necessary to distinguish between variable and fixed costs. The fixed costs exist anyway, they must be paid to enable the basis for business activities (rent for business premises, insurance premiums, etc.). The variable costs arise with the production of the goods (costs for purchasing raw materials, transport costs, etc.). Employees, depending on the category of their activity, are to be considered either as fixed costs or as variable costs.