Starting Smart If your outgo exceeds your income,then your upkeep will be your downfall.

Running a profitable new business requires adequate cash flowand that operating expenses consistently be met. Once you'vesettled on a business idea and have completed adequate preliminaryresearch, the time has come to develop your first estimated annualbudget.

Even the most conscientious person who tries to budget for anentire year may underestimate or overlook a variety of everydayexpenses. Budgeting problems can result from miscalculations,overspending, or, quite simply, growing too fast. Before jumpingin, keep in mind that the budget for your first year must includeboth one-time start-up costs and ongoing monthly expenses.

Whatever your situation, a good budgeting rule of thumb is toerr on the side of caution. This means it's usually best tooverestimate your expenses-and the time it will take until yourbusiness can cover its own costs-and underestimate potentialprofits. Be sure to incorporate advice from others who are runningbusinesses similar to your own. Better safe than sorry.

To plan a realistic budget, many business counselors suggestcalculating both best-case and worst-case financial estimates, thensettling on numbers that fall somewhere in between. Others feelthat a visit to an accountant can prove invaluable in helping toproject your business' expenses, revenues and cash flow.There's no single, foolproof method. As a result, ourentrepreneurs, who are already operating successful ventures, havereturned to share the procedures they followed and the lessonsthey've learned about planning an accurate budget.

Judy Proudfoot, Proudfoot Wearable Art

Judy Proudfoot, 45, designs and sells handpainted clothingitems, including sweatshirts, T-shirts and coordinates. Working outof her Alexandria, Minnesota, home, she uses a unique watercolormethod with acrylic paints to create wearable works of art.

Because Proudfoot became involved with the Foundation forInternational Community Assistance (FINCA) before launching herbusiness, she says planning her first budget was a snap. Based inWashington, DC (202-682-1510), with regional offices nationwide,the foundation provides start-up capital, instructional trainingand ongoing support to individuals-many of them women-interested inlaunching small businesses.

"The folks at FINCA showed me what it takes to start abusiness," Proudfoot says. "When I started with thegroup, they actually gave us a budgeting sheet that was all chartedout, category by category, guiding us through the process ofdetermining how much money we would need monthly in order to run abusiness. As a result, I have a solid system that I go by, and Itake it very seriously. Although I'm now into the second fullyear of my business, I still look back at my budget every month andcompare where I thought I was going to be financially versus whatreally happened. It helps me to remain realistic about my goals andexpectations."

Because she works from home and her products are relativelyinexpensive to create, Proudfoot says that her business'sbudget is quite different from many others. "My business is alot simpler than most," she explains. "As a result, whatI mainly have to budget are my craft-show fees-I have to pay out acertain amount of money to reserve selling space at upcoming shows,and payment is usually required about four months in advance.That's my biggest expense right there, followed by expenses topay for the clothing items themselves, the paints, gasoline,telephone calls, postage and shipping. Those are the real basicsfor me. That's where the money goes. And it doesn't hurt,either, that my husband works in advertising, because I get a lotof freebies from him, including no-charge consultation about how toget the most for my advertising dollar."

Marian Fletcher, Let's Go Party

Marian Fletcher, 55, says that despite all the time she spentplanning the initial budget for the party-planning and cateringservice she launched from her home, she still somehow overlookedsome major expenses.

"The budget I prepared has been working pretty well, but Iran into a couple of problems because I forgot to add in certainthings," Fletcher explains. "Like taxes. I knew I wasgoing to have to pay taxes on whatever profits I made, but Ididn't even think about the sales and use taxes that I must payon whatever I buy or sell. Having expanded my business to includeone full-time employee and six part-timers, I didn't even thinkabout having to pay money out for the employee's taxes. Thereare so many different kinds of taxes, and those little thingsreally mean a lot. They add up very quickly and can offset even thebest-laid plans."

Unlike most small-business owners who budget 12 months at atime, Fletcher prefers to plan her budgets six months at a time,due to the cyclical nature of the party-planning and cateringprofession. "With this type of business, it's more preciseto budget six months at a time, rather than annually, because youbook most of your jobs well ahead of time, and demand for yourservices comes in cycles, depending on the time of year," shesays. "Although weddings and other big affairs, such asanniversary parties, tend to book one year in advance, most otherparties only book ahead three to six months. By planning a budgetsix months at a time, you get a much clearer picture of how muchmoney you're going to make, and what your expenses willbe."

When it came time to prepare her first budget, Fletcher was astudent at Women BIZ Experiencess of Baltimore City (WEB), a localentrepreneurial education program. Her instructors there providedguidance in budgeting realistically. "They gave us a form togo by," she says, "which included such items as: rent;insurance; costs of goods sold; transportation, storage and postageexpenses; post office box rental; and different things like that.It was a very long sheet. The funny thing is that it also containeda special place for taxes-if only I'd known at the timeeverything that was involved! Except for overlooking those taxes,though, the budget has really worked."

Vic & Suzette Brounsuzian, Meg-A-Nut Inc.

Once Vic Brounsuzian, 44, decided, with his wife, Suzette, toopen a small shop selling dry-roasted walnuts, pecans, pistachios,filberts and other items, he gathered extensive budgetinginformation about pricing and expenses from companiesnationwide.

"I started doing price comparisons and calling vendorsright away," Vic says. "I practically called everywherein the United States. I needed to bring in nut supplies, equipment,balloon decorations and other food items like fine chocolates anddried fruits and snacks-there were a number of things being donesimultaneously. I had catalogs and brochures from all of thesecompanies sent over to me, so I could look into their products andprice lists. Next, I narrowed my selection of vendors to the threemajor distributors of each type of product I was interested in, andgenerated some estimates from there."

Because the Brounsuzians were setting up shop in a local plazarather than working from their home, they were forced to includesome rather substantial one-time start-up costs in their first-yearbudget, in addition to expected monthly expenses. These includedoutlays for extensive renovations, fixtures, furniture andequipment.

"We chose a space half a block away from a movie theaterand were thrilled with it, but there was a lot of work that neededto be done," Vic explains. "Working with contractors, Ihad to do basically all of the interior construction in the shopbecause this was a brand-new shopping plaza, just being completed.Then there were other big expenses involved, like purchasing aroaster for the nuts and dealing with the sign companies. But youknow, as they say, you work hard and it pays off."

A business writer for the past seven years, Kylo-Patrick Harthas run a successful homebased consulting business since1989.

Just For You

Planning a realistic budget involves estimating both one-timestart-up costs and ongoing monthly expenses. One-time coststypically include money spent on equipment, furniture andprofessional fees incurred in organizing the business. Ongoingmonthly expenses include funds spent on rent, insurance, employeewages, accounting and legal fees, and advertising and marketingexpenditures.

When preparing the first annual budget for your new business,the following one-time start-up costs should be included, asapplicable: renovations and remodeling; equipment, fixtures andfurniture; starting inventory and supplies; deposits, licenses andpermits; legal, professional and consulting fees; utilityinstallation; and initial advertising costs.

The following monthly expenses should also be included, asapplicable: salaries and wages; rent expenses; insurance, utilitiesand tax payments; materials and supplies; freight and shippingexpenses; advertising and marketing fees; telephone and faxcharges; credit card, loan and interest payments; cleaning andmaintenance costs; accounting and legal fees; automobile andtransportation expenses; and unexpected miscellaneous.

Contact Sources

Let's Go Party L.L.C., 4531 Manorview Rd., Baltimore,MD 21229, (410) 624-0584.

Meg-A-Nut Inc., 1574 Buttitta Dr., Streamwood, IL 60107(708) 837-2551.

Proudfoot Wearable Art, 1402 Bridgeport Ln., Alexandria,MN 56308, (612) 763-4904.