Creating a project budget is one of the utmost critical part of converting your idea into a real business. You need to be as strict as possible during this step, for not just the start of your business, but the survival of it.
If you under estimate your expenses, it can terminate the business before it comes to life. Do not take this statement lightly, this is something a majority of startups deal with. To give you an example: A restaurant start-up might consider buying and installing a hood, but might not know about the structural engineer they have to hire to do load calculations on the roof and ceiling in order to be approved for their permit by the city. They might not even consider exactly how much their permit fees will be at city hall, or a deposit required to give to a landlord or the tax department (A lot of states’ Tax Department actually want a deposit sometimes to open a new business), or even a deposit for the utility company.
Another important part of creating a budget is to also not just to under fund, but to also not over barrow. It is pretty unfortunate to pay interest rates or extra months that you didn’t need to. Properly funding your project might increase the momentum of your company’s growth, and if you can budget properly because of one article, this is that one article.
Everything you don’t know will cost you money in the project, and I assure you it is nearly impossible to get out of opening a business without a change order. These next few paragraphs are ones that you’re going to want to read a few times. It is very wise to look deeply into the expenses a lot of business might not consider, here are some common mistakes people make in budgeting.
For a lot of potential business owners, equipments to operate might be a significant chunk of their project budget. Even if it is not a large chunk, it is still very important to create a detailed price list to keep a strict budget. When pricing a piece of equipment, there are a few things to take into account:
- Shipping Costs
- Sales taxes
- Installation Costs (if any)
- Will it need a permit (Does the water or gas line need to be increased to accommodate said equipment)
- Resource usage (Some equipment have a larger electrical requirement, like freezer’s or ovens. Refer to “Renting A Space: What To Look For”)
When you are pricing out your equipment for your new business, it it usually wise to also download their catalogs since your city hall might want a copy of it to approve permits. This will save some time later.
You are also going to want to budget your starting inventory. This looks pretty easy, but take your time in creating it. To do this step, you need to already have your vendors picked and prices negotiated. Refer to “How To Pick A Vendor And A Price.” Figure out when you have to pay your vendor upon your order. Whether it’s a perishable good or one without an expiration date, most vendors require a payment within one to four weeks of order.
Keep that in mind when coming to the end of your project: You still have to order inventory and there is a strong chance you might not make enough sales yet to pay off that first order. Your first order is going to be a pretty big one, if not your biggest. If you are not starting your business with any goods, prepare to make an expensive order. The initial budget should have your first one to two month inventory needed to operate.
Your budget should also have your detailed construction costs. In most cities, you are not even allowed to paint your own store if you do not have a contractor’s license. Because it is a commercial space, you even need permits to do a majority of the changes that you might need. After you find your space and before you sign your lease, you should have at least 3 General Contractors come and bid out the scope of the work you want. Tell them to give you a line by line cost detail to make sure all of your desires are in the bid they are going to give you. If you are happy with the price a GC gives you, talk to them more and really make sure that’s the price, because this is probably going to be your largest chunk of the budget.
I have seen too many people choose the cheapest contractor and get drowned in change orders because a desired detail was missed or an unforeseen variable came into view of the contractor. Cheapest isn’t always a good option, because sometimes paying a little more gets you what you need rather than fall short because of something being inadequate.
This is a list of other common items business owner’s miss when budgeting their project:
- Exterior sign costs (including permitting for sign and electrical work to hook up)
- First month rent and deposit to landlord
- Starting quarter of insurance (sometimes insurance companies want between 3 months and 12 months of insurance up front to start policy)
- First payroll (all of the revenues might go to other initial bills, make sure to have enough money for your first payroll)
- Licensing fees (business license at city hall)
Refer to this link to check out some more unforeseeable costs.
While creating your budget, reach out to every single potential cost you might take on and get a bid or invoice from them to add to your paperwork. You can then use this budget with each individual outlined cost to show to your financial partners.