Early Budgets: Tips From Major Businesses

Looking at Amazon’s behemoth status and involvement in myriad industries, it can be hard to imagine the company started as a small business operating out of a garage that exclusively sold books online. Since Jeff Bezos launched the company in 1994, he’s grown Amazon to hit a $1 trillion valuation.

Although it’s an impressive milestone, Amazon wasn’t the first company to reach a $1 trillion valuation; Apple was. Coincidentally, Apple also started in a garage. It then went from building computers to expanding its product line by offering phones and consumer services.

Both Amazon and Apple started as smaller businesses with a fraction of their current budgets. Through bootstrapping, managing cash flow and stretching their business’s budgets as far as they could go, Bezos and Apple co-founders Steve Jobs and Steve Wozniak were able to grow their respective companies.

One of the most common reasons that startups fail is because of money issues, according to CBInsights. Avoid the pitfalls and learn how you can set up a home-based business to make your early budget work. There’s no guarantee you’ll become the next Amazon or Apple. But you can learn from their founders’ experiences and use them to help your small business succeed.

How You Can Start Your Own Business With No Money

You don’t need to rent office space to start your business. Even if you don’t have any money, you can start a home-based business. This gives you the opportunity to focus on getting your company off the ground, without having to spend money on rent and utilities. In fact, 33% of small businesses in 2017 started with less than $10,000.

To start your own home-based business:

  • Know your local regulations. Make sure you understand what’s required to start your business. This includes the structure of your business, tax numbers and necessary licenses.
  • Get insured. Your homeowners or renters insurance likely doesn’t have coverage to protect your home-based business. Get the necessary business insurance to protect your company from different liabilities.
  • Designate a space in your home. Pick an area in your home that will serve as your business space. This will be important when it’s time to file your taxes because it can qualify you for a tax deduction.
  • Setting up your space. Get a desk, computer and any other necessary equipment for your business space. This is going to be the area you operate your business, so make sure you have access to everything you need. And don’t forget about ergonomics.

Starting as a home-based business is an approach Apple took. Jobs and Wozniak sold their personal possessions and they used available resources to operate Apple. They gathered in Job’s parents’ garage and used that as their place of business. Without having to make monthly payments, Jobs and Wozniak could focus on building computers and trying to make money for their company.

They also used resources readily available to them. Jobs and Wozniak requested parts at their jobs and spent time in the garage putting together computers. They’d make money by selling their computers to hobby computer makers and eventually working with local shops to secure purchase orders. One of Apple’s first deals was to supply a local store with 50 computers. But Apple didn’t have the money or resources to fulfill the order. So, Jobs leveraged the order with another store to get the parts on a loan. This allowed Jobs and Wozniak to get the parts they needed and they were able to fulfill their order.

How can you use Apple’s experiences for your own small business? Jobs and Wozniak put their efforts into running their business. They only spent money when it was necessary. And when they didn’t have money or resources, they found creative ways to get around it. Although we don’t recommend that you use resources at your day job to support your small business, we believe bootstrapping is a must.

Bootstrapping

Bootstrapping is a term that refers to small business owners starting a business with little to no money. Any money that comes into the business is put back into it to continue its growth. Business owners practicing bootstrapping don’t spend money unless it’s absolutely necessary.

It’s a principle Bezos utilized in his early stages of entrepreneurship with Amazon. Bezos stretched his financial and physical resources as much as possible. He secured nearly $1 million in investments and his parents also contributed a portion of their life savings. Needing to spread that money as far as he could, Bezos had to get creative. When his staff needed desks to work, he built his own – out of doors. Nico Lovejoy, the fifth employee of Amazon, told CNBC that Bezos researched desk sales and found doors were significantly cheaper, “so he decided to buy a door and put some legs on it.”

You can make bootstrapping a critical part of running your business. It’s not just about being frugal. Bootstrapping can make you think of your business differently and force you to be resilient.

Stay away from debt. Bootstrapping is all about using your current resources and money in a way that gives your business the best opportunity to grow. Putting your business in debt defeats the purpose of bootstrapping.

Don’t mix personal and business funds. This can be a critical mistake for small business owners. Keeping your personal and business money separate from each other means you won’t misspend or have issues with taxes.

Look to the local community. Whether it’s for marketing or getting advice, go out into your community. If you need advice about your business, you may not have to hire a consultant. Your community may have free resources for small business owners, like SCORE or Small Business Development Centers.

Be a jack of all trades. If you’re bootstrapping, you’re going to need many skills. Being a well-rounded business owner means you can handle issues as they come up. You’ll have to learn how to handle tasks that are outside of your skillset. This is also great because when you can finally hire someone to take on these responsibilities, you’ll have some background knowledge on how to do the job and manage the employee.

Create a prototype. Creating a prototype or small-scale version of a product or service can let you test the waters. If there’s a lot of interest in your business, product or services, you know you have a place in the market.

Don’t be afraid to fail. Bezos is famous for detailing the ideas that failed as he and his team tried to expand Amazon. In a 2016 shareholder letter, Bezos described Amazon as “the best place in the world to fail.”

An important element to bootstrapping is understanding your financial resources. One of the best ways to know what your business’s finances look like is through a budget.

How Do You Set Up a Small Business Budget?

Creating a small business budget gives your business a good opportunity to grow. With a budget, you’ll know how much money you have on hand and the amount coming in and out of your business. Despite the benefits of creating a budget, 61% of small businesses didn’t have one in 2018.

If you don’t have a budget for your business yet, don’t panic. Take a look at these steps to help you get started with creating your first budget:

  • Look at your revenue. Calculate how much money your business is bringing in. If you’re just starting your business, you can estimate how much money you think will come in.  When you’re estimating, it’s better to be conservative than overly optimistic. If you pick too high of a number, you could put yourself in a tough financial position.
  • Subtract monthly expenses from revenue. This will give you an idea of how much money you have leftover in a given month. If it’s a positive number, your business was profitable for the month. If it’s a negative number, that means your business lost money. But don’t be alarmed. Not every business has a profit each month.
  • Count your monthly expenses. Even though you may not have regular monthly bills like rent and utilities, your business likely has some expenses. Total up your total expenses in a month. This includes any items your business pays for. Simply put, this is money going out of your business.
  • Flexible expenses. These are expenses that relate to running your business and can change from time to time. For example, implementing your marketing plan can cost your business money. As can buying more office supplies for your business. If you find you had a profit one month, you can use the extra money to pay for these other expenses. During slower times of the year, your business may have to be more frugal.
  • Build a rainy day fund. The unexpected can happen. And if it does, you want to be sure you can cover it. Set aside some money to build up your rainy-day fund, which is also called a contingency account. A good rule of thumb is to have at least six months worth of expenses saved.

Updating Your Small Business Budget

Businesses change and evolve constantly. As your business changes, you should revisit your budget to make sure it’s still accurate. The budget you created when you first started may not be applicable after being in business for a few years. You may have a lot more income or increased expenses. Updating your budget gives you an opportunity to see how your business’s finances are changing.

There’s not a simple answer of how often you should review and update your budget. It’s dependent on each small business. In the early stages, it might not be a bad idea to review your budget on a monthly basis. This can be especially helpful if you created your original budget before you had any income coming into your business.

Once your business is a bit more established, you can update your budget after every quarter. The goal is to make sure you know how much money is going in and out of your business. And you want to be able to prepare for slow seasons and large expenses or bills ahead of time.

Moving Your Business Out of Your Home

Some home-based business owners may come to a time when their company has grown enough that it can move out of their house. A variety of factors can result in you moving your business into its own location, such as:

  • Space. If your home office is no longer big enough for you to continue running your business, it may be time to start looking for a new place.
  • A bigger team. When you started your home-based business, you were probably the only employee. But as your business grew, you may have hired your first few employees.
  • Customers. Depending on your business, you may have clients or customers visiting your home. This can get hectic and pose some liabilities.

If you’re looking for business space, there are a couple of things you want to keep in mind. From location and size to finding an agent, these factors can help you find the perfect space for your business to move into.

Think about the physical aspects. Think about the location of your new office space. Where do you want to be located? How big do you want the space to be? Some businesses may want to be located near a busy main road, while others are satisfied being in a quieter area.

Work with an agent. A commercial property agent can help you find the space you’re looking for. They’re like real estate agents but specialize in helping you find the building you need for your business.

Take tours. A potential new home for your business may look pretty in photos, but consider taking a tour. You may get a different opinion after seeing the space in person.

Go over the paperwork. As with your home, you’ll have paperwork to go over when you decide on a place to move your business into. Go over it carefully and negotiate any changes you may want.

Starting a home-based business is a big decision. Getting it to be as successful as Amazon or Apple isn’t a guarantee. But you can use their experiences to help you get your business up and running. Maintain a budget for your business. It’ll put your business in a good financial situation and you won’t be surprised by any large expenses. And practice the principle of bootstrapping. Stretch your resources as much as possible and spend money only when necessary to grow your business. Eventually, your small business may be successful enough to move out of your home.

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