Building an industry-leading startup requires careful planning and organization. During early-stage development, the savviest startup founders will create a fixed monthly or annual budget. For most startups, sticking to this budget is a mission-critical component of success.
"Business budgeting is one of the most powerful financial tools available to any small-business owner," says Entrepreneur. "Put simply, maintaining a good short and long-range financial plan enables you to control your cash flow instead of having it control you."
Top 5 Startup Expenses to Budget For
The first step to building a startup budget is to make some reasonable assumptions about your business. Start by asking yourself a few key questions:
- How much money will the startup make in its first year?
- How much will it cost you to make the product?
- How many users does the startup hope to acquire?
Use these benchmarks to make a basic cash flow assessment for the year. Plan for each month and establish a specific budgeted dollar amount. "The sales number will be critical since they'll be used to compute gross profit margin and will help determine operating expenses," says Entrepreneur.
When it comes to creating monthly line items, consider these basic startup expenses:
Depending on the nature of the business, equipment costs can be one of the biggest monthly expenses that startups face. Your startup will need to budget for computers, servers, and other miscellaneous tech equipment. Multiply that cost by the number of employees and equipment can become quite costly. Fortunately, there are a number of lease opportunities available to reduce the upfront cost of equipment. Additionally, startup founders frequently take advantage of refurbished equipment through resale stores or online auctions.
"As a startup, it's imperative to have the tools you need to be productive and at the forefront of your industry, to be a step ahead of the competition," says Bill Champness, managing director of Hardware Associates. "As launching your business and sustaining your workflow may involve long hours and many meetings, benefits such as long battery life, fast processors, and large memory are essential. When you choose repaired IT systems, you can have access to the latest, top of the range models for up to 80 percent less than if you bought them brand new."
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Human resources expenses — recruitment, payroll, training, benefits — can represent a significant portion of a startup's total monthly budget. In fact, startups spend up to 25 percent of total revenue on human resource expenses. For any startup, allocating appropriate funds to human resources is a mission-critical component of longterm and sustained success. For startups with limited capital, outsourcing human resource functions is a cost-effective measure. Sagar Yarnalker, CEO at DailyNinja views outsourced recruitment as a must-do for early-stage startups:
"As a founder you will still be able to take a call on hiring the candidates sourced by the agency; the sourcing should be handled by recruiting agencies. Outsourcing technology is something that should be done only with a technical co-founder onboard or a trusted third party which is monitoring the agency, if you are a tech-focused business," recommends Yarnalker.
Costs associated with legal responsibilities are often overlooked. There are a number of early-stage legal fees to consider including:
- Incorporation Fees
- Attorney Fees
- Contingency Fees
- Referral Fees
- Statutory Fees
- Retainer Fees
While paying for an experienced lawyer is unavoidable, Veronica Picciafuoco, contributor at Entrepreneur recommends these simple "hacks" to save on legal fees:
- Minimum Viable Legal Protection: Instead of going to an attorney, consider legal alternatives including publicly available standard forms and automatic document assemblers.
- Alternative Fee Arrangements: Most lawyers will bill by the hour, but it is always worth asking if there are alternative fee arrangements available. Some lawyers even institute fixed fees in ce
- Outsourced General Counsel: Many firms offer flexible legal counsel services. In this scenario, the lawyer operates on a part-time and as-needed basis. This arrangement can save startups thousands.
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Setting aside capital for marketing is another integral component of startup success. Startup founders must absolutely budget for social media, website development, advertising, and more. In order to gain significant traction and maximize brand awareness, startups must invest in these and other marketing basics. For early-stage startups, Phong Ly, contributor at Tech, recommend adopting video:
"YouTube has over a billion visitors every month. Facebook users watch eight billion videos a day. You don’t have to have access to Hollywood producers to create a shareable online video. Look at the audio and visual resources you have, and think about what type of video would be helpful and informative to your audience. Can you make a professional, informative video sitting in your office? With some trial and error, probably yes. There are plenty of free slideshows and video editing software that will help," says Ly.
Finally, startup founders must allocate some of their budget to office space. This can be tricky, especially for early-stage startups with limited budgets. Fortunately, there are plenty of cost-effective and convenient alternatives. Save on office space by taking advantage of an international coworking community.
RocketSpace caters to Seed to Series C tech startups with a minimum viable product in place. With access to flexible coworking space, world-class amenities, networking events, workshops, and an ecosystem of internationally recognized tech talent, startup founders are given everything they need to unlock accelerated growth!
Scale Your Startup at RocketSpace
Is RocketSpace right for your tech startup? Over the years, hundreds of tech companies have scaled at RocketSpace. In fact, industry-leading tech titans including Spotify, Uber, and Zappos have utilized RocketSpace's tech ecosystem to growth.
“RocketSpace is the perfect environment for startups in that intermediate zone to grow into mature companies. When we first joined, we were 4 people. Now we’re a team of 23, have raised a $10 Million Series A round and launched our product. At RocketSpace, you have this tremendous resource in other founders who are going through the same things you are. You also have access to talks with really impressive people such as the CMO of Slack or the founder of Trulia, and exposure to all of these potential clients through RocketSpace’s Corporate Innovation Services. The infrastructure is great too. The team is super-friendly and was so flexible in helping us expand into larger offices as our team grew. RocketSpace just feels like home for us," says Todd Mostak co-founder + CEO at MapD.