Budget Effectively While Creating an Early-Start Business Plan

Part of running a business is ensuring you have enough money to pay the bills every month! And eventually, make enough to turn a profit and perhaps sell your company in the future for your magic number.

When budgeting effectively, remember your hourly rate. Do you have the skills to do this effectively, or should you pay someone less than your hourly rate to do this?
In the early years, it is important to learn how to do all the jobs required in your business, whether it's creating business plans and marketing budgets or knowing what type of cleaner you need for your workplace bathroom. Learning from top to bottom is key.

So, let's talk about budgeting.

Spreadsheets are great. There are also many versions of budgeting tools online that you can use, but a template is here for you to get started.

Now, budgeting, as I said, is making sure you can pay the bills each month. So, let’s start with the basics.

All Expenses: List everything you need to pay for. Check bank statements for direct debits and standing order details, the frequency of the expense, likely costs in the future, and so on. Go nuts and list everything! Whether it’s taking 10 clients to the Formula 1 with a £15K budget or the number of toilet rolls you think you’ll need at the office.

All Income Sources: In the early years, check for universal credit entitlements, government benefit options (yes, business owners can get state support!), income sources you know of, sales, pipeline, likely number of introducers, referrals, and so on. But be pessimistic. Always assume no more sales through the door and consider what that means for your budget. Do you need to spend more or less on marketing to improve this? When I started, my marketing budget was 25% of my first year's turnover as I needed to get out there. Over the years, this has been fine-tuned based on how many new clients I wanted to onboard based on existing clients and capacity to not take on too much, as my service standards drop as a result.

I remember one year purchasing an IFA business for nearly £2 million. My business doubled overnight, and so did the number of clients I now had to look after! I had no time in the diary to do anything, and I was being pulled from pillar to post. We also had staff leavers, and sickness went up. Everyone was stressed out and tired. But we managed to keep 98% of the clients we onboarded due to the acquisition. What did I learn? Get the basics right first. Make sure your back office and capacity to take on more are there before you grow. Don’t grow and then not be able to look after your clients. This leads to reputational damage, higher expenses, and fewer sales.

In the early years, you may not have a back office and will likely be doing everything yourself, so your budget also needs to include time off that you’re going to take. Breaks are incredibly important and having them in the diary at the start of the year keeps you driven and focused. Book all your holiday dates out of your diary in January. Allow up to 12 weeks before taking the next break. This gives you something to look forward to, whether it's a weekend away on a shoestring budget or camping in the back garden. Do something that isn’t work-related and leave your laptop at home. Rest is so important when running a business, as most business owners have the 2 am wake-up mode – when your brain is still ticking away at 2 am! (Putting a notepad next to your bed helps with this, by the way. If you have something going round and round in your head, then write it on the notepad. You will be surprised how quickly you can go to sleep once you’ve written it down).

Back to budgeting.

The spreadsheet template gives you the start of what you need for a budgeting plan. Now you need to do two things:

  1. Open a Second Business Bank Account: 20% of your income needs to go in here and out of your main business account. This is your tax and emergency pot. Do not touch this! And religiously transfer money into here equal to 20% of sales.

  2. Automate as Much as Possible: Set up standing orders, regular payments, anything that can be automated, do it. It saves you time and money in the long run and helps avoid forgetfulness.

You now have your list of expenses and income, you’ve automated everything, you’ve set up a second account for tax, and your holidays are booked throughout the year.

Back to the hourly rate.

Find an accountant and a financial advisor, preferably ones who know and work with each other already. A good accountant is worth its weight in gold and will help you avoid expensive mistakes. A financial advisor will be able to cover off all the points the accountant cannot. Book two meetings a year with these people in your diary. One in January to go through your tax year-end considerations and once again in September for your end-of-year push. If your business is seasonal, then before and at the end of the season works.

Working with excellent professional services gives you your hourly rate to do what you do best and build your business. These professionals can deal with the important bits while you get on with your day-to-day job. However, they will not create a budget plan for you, only give you the figures you need to budget effectively.

Once you have those figures, onto growing your business.

Effective Budgeting Quick Wins

How to tie in your business plan and budget together takes skill, and it’s important to have the correct figures. Below are some quick wins for when you’re budgeting.

  1. Budget for Introduction and Referral Gifts: Always reward the behavior, not the sale. If someone has introduced you to someone, send them a gift to say thank you. This will stand out and likely lead to more introductions. The cheapest form of marketing is introductions, so make sure you include gifts to say thank you. Do not send the gift out for an introduction; that’s bribery!

  2. The Magnum Tricks: I use a gift of a magnum of champagne to gain more introductions. Receiving this as a thank you is good enough, but why a magnum? Well, where does a magnum go in the house? It’s too big to be put in the wine rack and unlikely to be drunk on its own. Usually, this will be drunk with friends and family and in the meantime, be left on the side of the kitchen. How does the conversation go when your new clients’ friends pop over for a coffee and see the bottle? “Where did you get that from?”, “That’s from my new financial advisor Brad; he sent it to me because I gave him my brother's details to speak about financial advice.”, “Maybe you should introduce me to him as well?”

    During a dinner date with a group of friends: “Oh, what a lovely bottle to share around!”, “Yes, this is from my new gardener; he sent me this to say thank you for introducing the neighbors to him to sort their garden out.”

    And so the magnum stays in pride of place, brought out on special occasions, and leads to more bottles.

    Common sense will tell you if someone takes advantage of this, but of course, the gift has to match the potential business opportunity. Would you rather sell to an empty chair and have champagne in the fridge, or no bubbles and a lot of possible new inquiries to chase?

  3. Budget for Tax: As mentioned earlier, open a second bank account and pay 20% of your income into it. This covers your tax bill and the odd emergencies that crop up.

  4. Bulk Buying Items: Is it cheaper to bulk buy items you know you’re going to be using? Apply for a Booker's or similar card, which are outlets for businesses only where you can purchase bulk materials and items. Build up points with these companies, like some supermarkets, to use in the future.

  5. Apply for a Business Credit Card: Companies like Amex offer a point system also. If you make regular purchases, using an Amex builds things like airmiles or gift shop vouchers. Some banks like NatWest offer cashback facilities, and by purchasing using these cards, helps you build up a reward system. Google "best business cards UK" and see what the latest offers are? Remember though to always pay the card off in full to avoid fees.

  6. Marketing: In the early years, marketing budgets tend to be higher than later on, so make sure to use marketing costs wisely. Avoiding magazine articles and leaflet drops through the letterbox are two things to avoid. How often have you been in a dental surgery or doctors and flicked through a magazine? Did you buy anything from it? Probably not. Same with leaflets, how often do you pick up a leaflet and buy a product? Probably more often than in the doctor's surgery, and some leaflets are really good. The local leaflet with electricians, builders, insurers, financial advisors, etc., is a good one, as people tend to stick those on the fridges, so maybe this could be a good marketing option? We’ve already covered off the magnum, and I do champion a referral package for all businesses. We used to give out helicopter trips at £75 per person for an introduction. This was an exciting thing to do for someone who just introduced me to their family and friends.

  7. Government Grants and Matched Funding: Before making significant purchases, check with the local council for any grants on offer. Most will give funds to businesses that contribute to the local economy. You can very rarely retrospectively claim for something, so it’s a good idea to consider your purchases above £500 and see if the local council can support. Ask for the economic development officer. The one in Chichester is excellent, as after a while they get to know you and call you to see if you want to apply for new grants as they come out!

  8. Lease vs. Purchasing: I find leasing items in the early years beneficial for cash flow. Anything from your laptop, car, printer can be leased, allowing you not to tie up capital into these items. Be very careful with printer leases though. I’ve had my lease with the same printing company since I started my business and cannot get out of it for another few years! Leasing items also helps spread the cost out, and some will allow you to keep the item after an extended period of time. Speaking with your financial advisor about this is key; they will give you bespoke options.

  9. Budget for Client Events: Next to introductions, client events are big winners for getting new clients. It can be costly, and if done correctly, can lead to more sticky business. Run an effective client event for more help with this. Within a budget, a once-yearly event should be included, as this can act as your company’s ACM (Annual Thank You Dinner), an annual information event.

There are also companies out there that can organize everything for you. From hospitality at the Formula One to bespoke champagne dinners. Remember the hourly rate question here.

Effective budgeting is key to a profitable business. On our boot camps, you will learn how to put together a bespoke budget planner that you can use over and over again.

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