When you are starting a business deciding on a budget can seem terrifying.
It can be as long as a piece of string and you can guarantee that there is a business, premises, an espresso machine and even a cash register to suit every budget.
Fixing your budget can be difficult, but there will always be factors which will affect it for each individual. You will need to work out how much you can afford to spend, and then allocate accordingly. To work out your budget, you will need to work out what monies you have available to you. Finance can take the form of savings or personal funds, bank loans, overdrafts or investment.
If applying for a bank loan, banks will usually require approximately 50% of the funding to come from you, and will match the other 50%. It is rare to get bank funding for more than 50% of the total investment you need, especially if it is your first business.
It is worth looking at other options to spread the risk to the bank, to top up your budget if necessary. Approaching family members to act as investors is an option, or buying expensive equipment on leasing agreements is worth considering.
Simply put, your budget is set by how much funding you have, plain and simple
Simply put, your budget is set by how much funding you have, plain and simple. People start businesses on anything from £30,000 to £300,000, and the trick to a successful opening is to stick to the budget you have, and make it stretch as far as you can.
Allocating your budget can be difficult, especially when there is so much choice on the market. For example, espresso machines can range from £1,500 to up to £10,000. Make sure your allocations are proportional to your budget. There is no sense in spending £8,000 on an espresso machine if your total budget for everything is only £20,000.
Most crucial however, is ensuring that your premises costs are proportional to your budget. Typically, cafes are leasehold, so you will pay an annual rents. Rents can vary dramatically, as we have covered in a previous blog, so make sure you aren’t overstretching yourself with a high rental and a low budget.
Finally, make sure when you are setting your budget, you then go one step further and draw up a cash flow forecast. Cash flow forecast templates are readily available online, from your accountants or even from your local Business Link office. Plan out your predictions and how much you expect to spend, then how much you anticipate bringing in. Crucially, be realistic.
I found personally, that it helps sometimes to break purchases down in terms of how many cups of coffee you have to sell to afford something. You will find you start looking at every purchase in a much more realistic manner, and a way which is simpler. This is especially helpful to continue to do after you open, when you start to realise the effort and energy involved in making, say, 500 cups of coffee.
But today’s top tip? Negotiate! In this climate certainly, nothing is set in stone, especially the price of services and high end goods. If you are buying a lot of equipment from one supplier, ask them for a discount. The worst that can happen is that they say no, the best is you either get money off, or freebies!
Don’t be afraid to be slightly cheeky. Conversely, don’t ask for money off straight away, or when buying small items or small quantities. Pick your negotiation tactics carefully, and know when to back off if a company says no.
It can also be possible to negotiate on your property deal, especially with one which has been empty for a prolonged period of time (as a rule of thumb, properties empty around a year tend to be good options). Try asking your solicitor to negotiate a rent free period, or a reduced deposit, or even the rent figure if it is a new lease.
However, make sure you have considered both premises and location carefully, and don’t be tempted to open in the wrong location just because you can get money off in the short term. Business is about the long term.
