How can you create an operating budget for a service-based startup?

1 Identify your revenue sources

The first step is to identify your revenue sources, which are the ways you earn money from your services. For example, if you run a web design agency, your revenue sources could be project fees, retainer fees, hourly rates, or commissions. You need to estimate how much revenue you can generate from each source based on your market research, pricing strategy, and sales projections. You also need to consider the timing and frequency of your revenue, as some sources may be more stable and predictable than others.

2 Estimate your variable costs

The next step is to estimate your variable costs, which are the costs that change depending on your level of activity or output. For example, if you run a consulting firm, your variable costs could include travel expenses, subcontractor fees, materials, or software licenses. You need to calculate how much variable costs you incur for each unit of service you provide, and multiply that by the number of units you expect to deliver in the budget period. You also need to account for any discounts, refunds, or taxes that may affect your variable costs.

3 Calculate your fixed costs

The third step is to calculate your fixed costs, which are the costs that remain constant regardless of your level of activity or output. For example, if you run a coaching business, your fixed costs could include rent, utilities, insurance, salaries, or marketing. You need to add up all your fixed costs for the budget period, and divide them by the number of months or quarters. You also need to factor in any depreciation, amortization, or interest expenses that may apply to your fixed assets or liabilities.

4 Adjust for seasonality and contingencies

The fourth step is to adjust for seasonality and contingencies, which are the factors that may cause fluctuations or uncertainties in your revenue and expenses. For example, if you run a landscaping service, your revenue may vary depending on the weather, demand, or competition. You need to analyze your historical data, industry trends, and market conditions to identify any patterns or risks that may affect your operating budget. You also need to create a contingency fund or reserve to cover any unexpected events or emergencies that may arise.

5 Review and revise your operating budget

The final step is to review and revise your operating budget, which is the process of comparing your actual results with your planned results and making any necessary changes. For example, if you run a graphic design studio, you may need to adjust your revenue or expenses based on your client feedback, contract terms, or scope changes. You need to monitor your operating budget regularly, at least monthly or quarterly, and update it based on your performance, goals, and opportunities. You also need to communicate your operating budget with your team, stakeholders, and investors to ensure alignment and accountability.