The last thing you want your new business to do is leave you unable to feed your family or pay that utility bill. That may sound dramatic, but before you start your business (or even in the early stages) it is important to know what you need to do to keep food on the table. In other words, why you need a survival budget.
The importance of a survival budget
As an employee you will know each week or month how much money you have coming in. You know what you can afford and what you can’t. Running your own business takes away that certainty. So it is important to know how much money you need each month because this is what your business needs to provide.
This is of particular importance if you are leaving employment, voluntarily or through redundancy, and no longer have that employment income coming in.
It will also show where you could potentially make some savings, perhaps switching energy or broadband suppliers, reducing your food bill on unnecessary luxuries, or cutting out that holiday for a short time.
How to complete the survival budget
Firstly, remember the survival budget is for essentials only, do not include holidays for example. The budget is split into 3 sections.
This is to show all the income you receive each month and will include
- Salary (if you are remaining employed)
- Benefits (if you will be receiving any)
- Investment income from interest, dividends or rental property for example
Your total income will be calculated automatically.
Here you include all the expenses you typically incur every month. Items such as
- Rent or mortgage payments
- Council Tax
- Food shopping
- TV etc.
Your total expenses will be calculated automatically.
Your monthly Balance
The balance shows how much you have spare, or whether your expenses are higher than your income. Where there is a shortfall this is the monthly income that your business must bring in to keep your finances afloat.
It is very often the case that, in the early stages of a business, you will make a loss. You will have to spend on setting up the business and income is likely to be minimal at first.
- Do I need to continue in employment for the time-being (if this is possible)?
- How long will my savings last if I do not generate the required income?
- Does my business plan match the requirements of my survival budget?