How to Set a Budget

One of the most difficult tasks for a manager is trying to set a realistic budget in a time of wildly fluctuating costs. Setting a budget for a start-up is like trying to predict the exact weather at any time of day. The further out in time you try to predict performance, the less accurate you will be. Yet, at the same time, your entire venture is managed by the budget itself.

The only fact in this matter is that costs change all the time. In a start-up atmosphere, where new ventures have very little leverage costs can quickly spiral out of control. Unfortunately, new ventures aren’t afforded the luxuries of their larger, more established brethren so common financial instruments such as loans and lines of credit are usually not available.

To make matters worse it is nearly impossible to accurately predict sales momentum. After all, the best predictor of sales momentum is historical sales data. For a venture that has little to no historical sales information, any estimate of future sales momentum is a shot in the dark.

Fixed Costs

Variable Costs

What’s Driving Costs

Industry average Costs

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