Some of the most groundbreaking companies of the 21st century—Airbnb, Uber, Stripe—began as scrappy startups. Their founders had bold ideas and the guts to act on them. But here’s the part you rarely hear in the headlines: 90 percent of startups fail.
Not because the idea wasn’t good. Not because the founders weren’t working hard. The downfall, more often than not, comes down to money.
Cash flow kills more businesses than competition ever will. A founder can excel in product design, sales, or coding. But if they don’t put even the simplest financial framework in place, the business bleeds out quietly until it collapses. That’s why budgeting for your startup matters.
I’m not talking about a corporate-style spreadsheet with twenty tabs and color-coded pivot tables. I mean a practical, working budget you create at the very beginning of your business. One that helps you:
Forecast profits and losses to avoid flying blind.
Spot spending habits before they spiral out of control.
Set realistic benchmarks so when you approach investors or lenders, you can back up your story with numbers.
If you’re just starting out, the good news is that budgeting isn’t rocket science. You don’t need an MBA. You just need to think through three steps. Let’s break them down.
Step One: Nail Down Your Essential Costs
Every dollar matters when you’re starting out. You don’t have the luxury of shrugging off expenses as “just the cost of doing business.”
Your first job is to figure out what it actually costs to keep your business alive. That involves identifying both startup costs and ongoing operating costs.
One-time startup costs could include:
Business licenses and permits
Equipment or tools (a contractor’s saw, a food truck’s grill, a designer’s laptop)
Branding essentials like your logo or website build
Ongoing and recurring costs might be:
Rent (if you’re leasing office, kitchen, or warehouse space)
Insurance premiums
Utilities and internet
Payroll (even if that’s just paying yourself something modest to cover the basics)
Here’s the trick: don’t lump everything together. Split your costs into fixed and variable.
Fixed costs remain constant from month to month. Rent is rent. Insurance is insurance. They’ll hit your account whether you sell one unit or a thousand.
Variable costs change based on your level of activity. A coffee shop buying beans. A landscaper paying for seasonal labor. A bakery ordering flour. The more you produce or sell, the more you spend.
Why does this matter? Because once you know your fixed nut—what you must pay every month just to keep the lights on—you know how much room you have to play with variable costs.
This clarity keeps founders from making a common mistake: ramping up production or marketing spend without realizing the fixed expenses are already squeezing cash flow to the bone.
Step Two: Forecast Your Future Earnings
Here’s where most entrepreneurs get nervous. “How can I forecast revenue when I don’t even know what I’ll sell next month?” The goal isn’t perfect prediction. The goal is to give yourself a range of outcomes so you’re not blindsided.
Start by tracking every source of income from day one:
Sales (product or service)
External funding (investors, crowdfunding)
Loans or lines of credit
Once you’ve got even a few months of data, you can start playing with projections.
I recommend creating at least two:
Conservative projection: A “safe” version where you hit your goals 70 percent of the time.
Optimistic projection: A stretch version where you only hit your goals 30 percent of the time, but it pushes you to think bigger.
Why both? Because if you only plan for the best case, you’re far more likely to overspend and run out of money before you achieve profitability. However, if you only plan for the worst-case scenario, you’ll hoard your cash and never invest in growth. You need the tension of both perspectives.
Take a freelance graphic designer. Conservatively, she might expect $2,500 a month from repeat clients. Optimistically, she might hope to secure two major website design contracts, which would push revenue closer to $6,000. With both projections in hand, she can decide how much to invest in marketing, software, or outsourcing work without gambling the rent money.
Mentor Tip: Don’t forget seasonality. Landscapers in Colorado earn big in summer, then tighten belts in winter. Retail shops may ride a December surge, then slog through February. Build your revenue forecast with these rhythms in mind.
Step Three: Evaluate and Adjust as You Grow
A budget isn’t “set it and forget it.” It’s a living tool. The only certainty in a startup is that your numbers will change.
In the early days, it’s not unusual to run a deficit. That doesn’t automatically mean you’re failing. It simply means you need to become more discerning about what’s essential and what’s optional.
This is where you distinguish between necessary and discretionary costs.
Necessary costs are the lifeblood of your business. A bakery can’t run without flour. A plumber can’t work without tools.
Discretionary costs make life easier but aren’t mission-critical, such as advertising, nice office furniture, and premium software subscriptions. You can pause or cut them if cash gets tight.
I once worked with a food truck operator who was running Facebook ads every month. The ads brought in some customers, sure. But when his propane supplier raised prices, those ads quickly shifted from “nice to have” to “bleeding cash.” I recommended he pause them for three months, keep the truck rolling, and turn the ads back on once margins recovered.
The point isn’t to cut all discretionary spending forever. It’s to build the muscle of evaluation. Ask yourself regularly:
Is this cost still delivering value?
Could I replace it with a cheaper option?
If I had to cut it tomorrow, would the business stop running?
When you approach budgeting this way, you’re not just chasing numbers—you’re sharpening your decision-making.
Why This Matters Beyond the Numbers
Budgeting gets a bad rap. People think it’s about pinching pennies or being stuck in a spreadsheet. However, the real power of a budget lies in the freedom it affords.
When you know your costs, forecast your revenue, and track cash flow, you stop guessing. You start making decisions from a place of clarity.
Want to hire your first employee? You’ll know exactly when the numbers say yes.
Thinking about raising prices? Your budget will tell you how much wiggle room you have.
Considering outside investment? Investors won’t just ask about your idea. They’ll ask for numbers. Having a working budget makes you look serious.
Most importantly, budgeting forces you to engage with reality. It keeps you from drifting into the fantasy that passion and hustle alone will carry the business.
Mentor Tip: Often, when I meet with clients, they admit they have no idea how to create that very first budget. One tool I suggest is the Risk Management Associates (RMA) database. RMA collects financial data from actual loan applications across thousands of businesses, then sorts the information by NAICS code and consolidates it into industry ratios. Lenders use these reports to evaluate loan requests, but founders can flip the script and use them as a starting point. By examining comparables in their niche industry, they can work backward to establish a baseline for revenue and expense projections. It’s not a crystal ball, but it provides a reality check grounded in how similar businesses perform financially, which is far more reliable than just guessing. To learn more, check out: Why You Need to Know How to Benchmark Your Financial Ratios.
Conclusion
Every founder dreams of building the next big success story. Few recognize that the foundation of those dreams is the boring, unglamorous act of budgeting. But I’ve seen it over and over: the owners who build even a simple budget in year one are the ones still standing in year five.
So don’t treat budgeting as a chore. Treat it as a strategic advantage. Your numbers are the map. They don’t guarantee success, but they keep you from wandering off a cliff.
