Managing Startup Finances: A Comprehensive Guide for Effective Budgeting

Hey there, I am answering this based on my own experience. I started the actual project that I am working on at the moment without investing lots of money. I wanted to keep the costs as low as possible at least for the first year of activity. Ultimately, this helped us cover the monthly costs in less than 3 months, and monthly upkeep is almost $1000.

Living the Startup Life: An Understanding of Economics

Living the startup life means coming to a sophisticated understanding of economics in your own bank accounts. Below, I'll dive into the thinking behind startup spending. However, what it seems like you are asking here is how much is normal to spend on your startup.

Financial Risks and Budgeting

You are at risk of being a chump if:

You are spending your personal rent or living expense budget funding your startup. You have a single source of income.

Most people have a single source of income - their salary. That is true. It's also a financially risky way to live. Although a job may feel stable and secure with a single conversation, it could be gone. Ideally, you'll establish multiple sources of income. Some will be small - maybe only a few hundred dollars per month or year. Others will be larger - a few thousand dollars per month or year. And still others will be primary sources of income - enough to live on and save for the future. Yes, you can have two or more primary sources of income, each one being enough to support your personal expenses.

Planning Your Startup Budget

Assuming your personal and family expenses are covered, you have the means to build a company and will need to plan out-of-pocket expenses. To keep projects from growing out of control, create a bank account for the project and fund it with a pre-determined amount of money. Plan this budget based on your spending comfort and a reasonable planned cost of getting the work completed. Plan for milestones.

Milestone Planning

Milestone 1: A For-Profit Startup Experiment

Your first major milestone is to get someone to give you real money for your product. 1 counts as real money. How much money will it take to get to that milestone? Budget for that milestone and put the money in the bank.

Milestone 2: Balancing the Equation

Your second milestone is to balance the following equation:

Cost of product × Cost of doing business Price for product × Number of products sold.

If you can get your costs and your incomes to balance, then you've tipped your company toward profitability.

How much money will it take to get your company to profitable? Plan to get that budget in the bank as soon as Milestone 1 is accomplished.

Milestone 3: Achieving Break-Even and Beyond

Once your company is developed enough to get to the break-even mark, you will create changes that save money, make more money, and introduce efficiencies. Basically, you hone your craft so that you will be as profitable as possible. You might invest a bit into this milestone, but the company should be able to pay its own bills by this point.

Variables to Consider

There are a few factors to consider when planning your startup budget:

Will this be an investor-backed company? Will this be a bootstrapped company? Is this a hobby or a purposeful loss leader? How much do you want to budget for the startup?

There are distinct differences in the way you build a company if you plan to take investment. Investors get their money back when you sell the company, not the product, so you have to turn your company into a tasty morsel for an acquisition. This means that a history of overspending, hiring expensive people, or wasting time before closing sales deals simply doesn't fly with investors. If you plan to raise outside capital, spend thrifty from day 1.

Some businesses are successful even if they aren't profitable. They might draw attention to other businesses owned by the same person. A purposefully unprofitable business is called a loss leader. Some people choose to run businesses at a loss because the business serves the community, or because it pleases the personal whims of the owner. Some people are perfectly happy and able to pour millions into non-profitable projects to better their own lives or those of others. On the other side of the spectrum, some people are gambling their last few pennies on a dream of big windfalls.

The goal here is to do whatever you want to do, but do it with intention.