startup budget

4 Steps to Set Up and Maintain a Budget for Your Startup

By Luke Loftin

As the old saying goes, “In order to make money, you have to spend money.” But you have to know exactly how to spend the money—the goal, the strategy, whether it’s a good deal, and whether or not you can afford it. 

In short, one of the fundamental keys to business success, or even getting your venture off the ground, is creating and maintaining a startup budget. Budgeting for your business can be pretty complicated, but with the help from this guide, it doesn’t have to be. Let’s get started.

1. Assess the Costs of Your Startup 

What would it take to launch your business? This could be to open the doors in order to start seeing customers. Or having an operational website that accepts orders. Whatever your business is, you want to assess how much money you need to actually start. This is your “day one” budget. 

Here are some categories that will be useful for you to budget out:

  • Facilities Costs – If you have a brick and mortar business, it will need a location. So figure out how much your rent would be, or how much it would cost to buy the property. Then you have to go deeper and budget out the cost of setting up the space, for example: turning it into a store, remodeling it into the restaurant of your dreams, making it over into a doctor’s office. Or, it could be something less daunting like the cost of a WeWork membership if that’s all you need. Facilities costs are all the money you need to utilize the space for your business. 
  • Fixed Assets aka Capital Expenditures – If you have facilities costs needed to start your business, you will probably have capital expenditures as well. These include the furniture you will need to decorate your office or restaurant, as well as equipment like computers or an oven. 
  • Materials & Supplies – This versatile category encompasses things like office supplies and other items needed to operate your business. For example, if you’re a clothing designer, your budget for fabric would go here. 

“First, I think it’s important for small business owners to keep things simple when creating their first budget,” says Matthew Ross, Co-Founder & COO at The Slumber Yard. “There’s no need to get overly complicated and break-out every single line item. In my experience, the whole process can start to get quite overwhelming if you start to get too far into the weeds. Instead, try to bucket line items into larger groups and then project them out. For example, instead of splitting out meals, entertainment, and travel into individual line items, group them together and project them out as one.” 

Still, it’s advised that you spend a considerable amount of time imagining all the expenses you might encounter, ahead of time. 

“By far the most important thing for setting up a budget is a good cost estimate,” says Igor Mitic, Co-Founder of “People often overlook certain smaller costs such as office material, shipping, marketing costs and many more. These may look minor, but when they add up, they can seriously affect your budget. In that sense, step one is making a clear list of all of the fixed costs as well as variables. Make sure to write down every tiny thing that comes to your mind, and include that in your budget.” 

2. Estimate Monthly Expenses 

  • Fixed expenses are any expenses that are recurring every month without any fluctuation. These are items like rent, cell-phone or landline plans, website service fees, equipment lease payments, dues and subscriptions, retainers paid to PR firms, and business insurance, just to name a few expenses. 
  • Variable expenses are items or services you need to purchase to run your business but don’t recur with any regular frequency or fluctuate based on various factors. Common variable expenses include things like shipping costs, restocking office supplies, raw materials, and production costs. 

“I think one of the main struggles that startup founders face is that they don’t actively look for ways to save money,” says Calloway Cook, Founder of Illuminate Labs. “This sounds ridiculous, but they’re so focused on solving the business problem that they tend to ignore ways to be frugal which can increase the likelihood that the business survives the pre-revenue period.” 

3. Estimate Monthly Revenue 

The good thing about knowing your estimated monthly expenses is that it sets your first financial goal as a business owner: you have to make that amount of money just to break even. 

However, estimating your monthly revenue is the most difficult part of creating your budget. In most industries and businesses, it’s impossible to know exactly what your sales will be like for a given month. Service-related businesses might have clients on retainer. A restaurant might be able to estimate an average amount of revenue that will be pulled in on Sunday brunch. Tax preparers can expect the first quarter of every year to be their most busy. But for the most part, you won’t completely know what your revenue will be like for the month until after the month is over. 

This is compounded by the fact that the money generated from a sale or service will not be collected immediately. 

For example, if you estimate that sales for a particular month will be $20,000, and you will only collect 80% of the amount that month, your cash balance for this month will be $16,000. Unfortunately, your monthly revenue is bound to fluctuate, and you might not see a pattern or rhythm to this fluctuation until you have been in business for at least a year. For those entrepreneurs just starting out, stay diligent in estimating what your revenue will be each month and study your numbers deeply to understand why you made more or less money than you thought. 

4. Make a Cash Flow Statement 

Your cash flow can best be understood as the amount of money you have going into and out of your business every month. It’s imperative that you pay attention to this in order to keep your business running smoothly. 

In many ways, cash flow can be more important than profit. As you read above, you might generate sales for a given month but not be able to collect the payment for 30 or 60 days or more. If you make $100,000 in sales in one month, that’s amazing. Especially if your combined fixed and variable expenses are only, say, $25,000. But if you’re not able to collect that $100,000 within the next 30 days, you will definitely have bills coming due before then. And if you don’t have any money saved, how will you pay the bills? 

“Startups take time, no doubt about it,” says Ben Watson, virtual CFO of and founder of Fiscal Fluency “While you are building your products or promoting your services, it’s likely you’ll have some dry spells where cash is tight. This is an important time to have some cash available to make sure the lights stay on. Most experts recommend having 6-12 months of emergency cash saved up to float you while you pound the pavement. This is great advice, but remember that the lower your overhead, the longer the runway you have, so keep a close eye on expenses that aren’t necessary.” 

While loans for working capital can help you get through months where cash is tight, it’s better not to be caught off guard. 

“I would suggest reviewing performance on a monthly basis,” advises Ross. “Don’t wait until the end of the quarter or the end of the year. By comparing actual performance against your original budget every month, you can see how/why your business is missing the mark and make timely adjustments.” 

The Key to Creating a Business Startup Budget 

Always, always, especially when starting out, estimate your expenses high and your sales low. This will keep you vigilant about looking for deals and discounts wherever you can on your expenses, and motivate you to keep going after sales and generating revenue. 

Featured photo credit: Depositphotos
Subscribe to the Small Business Bonfire Newsletter
And get your free one-page marketing plan template.
Luke Loftin on Linkedin
Luke Loftin
Luke Loftin is a blog writer and an award-winning indie filmmaker. When he isn’t writing about himself, he specializes in finance and health, blogging about all sorts of topics including credit cards, personal loans, bank accounts, and the digestive system. He currently writes for LeadsMarket among other sites, and his articles are scattered all across the information superhighway.


Get RSS Feed
  1. I appreciate this article so much, thank you for posting!

    I can relate to not estimating my sales to low or my expenses too high and in turn, was super tight on cash for a few months because I kept expecting consistent clientele, but through the first year in business, I learned that high demand can in a way be ‘seasonal’.

    Thanks again for this post, it reminded me of how important it is too pay attention to the numbers and stay conservative with my money unless needed to invest back in the business.

  2. I appreciate your post! Thanks for sharing.

    I think its especially true to not know one’s true monthly revenue until after the first because of how inconsistent the incoming revenue can be. I think it’s important to set realistic goals, for example, us as house cleaners estimate on the low end of 30 clients per month at about $100 each, that way we keep costs low and expect low revenue, but benefit if lets say we get 100 clients that month.

    I really liked your insight and will definitely be checking back to remind myself of some key points in this article for my business. Thanks again.

  3. Thank you for sharing this post!

    I find this very helpful and just recently started implementing these strategies as I was struggling in the beginning stages of my business. You also start to realize in your daily life what are your wants and what are your needs and try to minimize the wants as much as possible to invest the savings back into your business.

    Very true on managing your budget as if you were going to undersell and overbuy expenses. It saves a lot of money in the long run. Thanks again for sharing.

  4. Learning the basics of cash flow management is so important for any business. When I first started my carpet cleaning business, I did not pay enough attention. Learning the basics of cash flow is what helped me take my business to the next level.

  5. One of the hardest things in my business is keeping up with expenses, with so many little ones to keep track of and many moving pieces, it’s really easy to lose track. With a limousine service like ours you’ve got employees, regular services, and all kinds of things in between. I highly recommend using a good accountant who can help guide you through managing your business’s finances.

  6. Nice piece, Luke. One of the things we’ve noticed in our cleaning businesses is our tendency to price ourselves lower and lower to try to get more of the jobs. AKA, selling the price vs the service. We caught ourselves doing it so much we were really destroying our margins and peace of mind at the same time.

    Once we started selling the benefits of the service and not fighting to the bottom, our monthly budget for increasing clientele expanded massively. If we charge no less than $150 for our regular clean instead of the 100 we were before, we now have plenty of margin to budget $10-20 to getting that client in the first place. I’ve seen this be true in other businesses as well.

    And I couldn’t agree more on the cash flow statement… we started doing that this year too and it makes a world of difference.


  7. In this time of the pandemic, I’m having a hard time budgeting all the expenses for my business. It seems that money goes out but few come in. I’m glad that I can use the tips above. thank you for this Luke!

    Best Regards,
    Michael Hams

  8. Cash flow is truly more important than profit itself, as cash is the way to ensure that the business can keep running.

    However, as a small business owner, I find it is really hard to build all the financial statements yourself and it can be expensive to hire professionals to work for you on a monthly basis.

    Could you please share some insights about how to design a cash flow statement? Thank you.

Leave a Reply

Your email address will not be published. Required fields are marked *