Budgeting Tips For Startups


When it comes to merging personal and professional ambitions, there’s nothing quite like starting your own business.

While this might seem like a road-less-travelled, nothing could be further from the truth. According to a year-end report by the DBEIS (Department for Business, Energy and Industrial Strategy) there were 5.94 million small businesses (with 0 to 49 employees) in the UK in 2020. This accounted for a staggering 99.3% of the total business population.

If you’re still not convinced that small businesses are the backbone of the country, prepare to change your mind. The same report found that SMEs account for around three fifths of the employment – as well as half of turnover –  in the UK private sector. A whopping 16.8 million people (61% of the total) were employed by SMEs, and turnover was estimated at £2.3 trillion (52%).

The figures speak for themselves. Small and medium enterprises are at the core of our economy. Whether you’re a one-man show or part of a team, your business is as essential to the country as it is to you. 

This is clearly demonstrated by the significant growth in alternative finance for SMEs over the past five years. According to a Small Business Finance Market report for 2019/2020, the past five years has seen major growth in alternative finance flows for SMEs. This includes a rise in equity investments, asset finance and marketplace lending. 

Of course, the outlook has shifted significantly since last April. The global pandemic has wreaked havoc on the economy, and businesses of all sizes are taking a hit. While the arrival of the long-awaited Covid-19 vaccine promises relief, the road to financial recovery might be long and winding. 

As a small business owner, you know the key role budgeting plays in keeping things afloat. Understanding your finances – as well as allocating them correctly – provides you with a realistic viewpoint when mapping out your business plan.

Moving into 2021, we’ve asked some expert SMEs to share their top tips for budgeting success!

“Achieve your goals by planning ahead, focusing on business drivers, and monitoring progress.”


For me, budgeting success is like planning your route from A to B before you set off. You could get there successfully by doing it on the fly, but you’ll have a much better chance of achieving your goals if you plan ahead:

  • Embark on this before committing to any major decision. Just because you have raised £1m, doesn’t mean you now have to spend it all immediately and commit to it.
  • Ensure you have contingency in the plan. There will always be something that comes up that is unexpected, so be on the cautious side rather than optimistic. Better to under-promise and overdeliver than the other way around.
  • Make it simple to explain by focusing on the drivers of your business – what changes the performance? Ultimately a budget is a plan, and the only way you can explain that plan is if it is as simple as directions on a map. What is the sales price, and what is the volume? Do I have different products like cakes, coffee and milkshakes… all different prices and expected volumes? If you spend x on marketing, what will happen to sales? If you hire person Y, what will that do you the cost of production of your good or service?
  • Think about every cost you are likely to incur. While that slack license only costs £100 a month, when you add in Google, Adobe, Email, Microsoft Suite, etc. etc. they add up.
  • Provide your team with a stretch plan. You might tell your investors or yourself you are happy to hit £1m of sales, but you might want to target your team with £1.2m and reward them as such if they hit that
  • Monitor progress against the plan periodically – whether this be weekly, monthly, quarterly, and make decisions about how your overall targets might need to be changed

“Use realistic revenue projections based on customer buying habits to create a cash flow forecast.”

Donna Torres, Global GM, Direct Sales & Operations, Xero

Even if you aren’t immediately concerned about running out of cash, a cash-flow forecast is essential for any business. It helps you map what has been going out and coming in, to give you an up-to-date view of your business’ cash flow.

The first step is to consider your revenue. For a lot of small businesses, the reality is that you’re taking in less sales than you would under normal circumstances. Making realistic revenue projections based on customer buying habits in the last year will be the first step in creating a cash flow forecast. Then it’s important to consider how much of this will actually go into your (business’) pocket.

Next to consider is expenses. Go through a typical month or year in your business and list out all of the predicted expenses that are going to come out of the bank account, and it may be best to extend the forecast to the end of 2021.

Historically, cash flow was something that businesses viewed a few times a year. But now, forecasting technologies that enable real-time insights and the ability to see into the future are more accessible than ever for SMEs. For example, apps like Fluidly use artificial intelligence to forecast and optimise cash flow, giving SMEs an up to the second measure of their money. Xero’s short-term cash flow tools can also help businesses project their cash flow for the next 7-30 days to help make informed decisions about the future. 

“Applying retainer fees for work can be a great way of securing longer-term cash flow stability.”

Rick Smith, Managing Director, Forbes Burton

Cash flow and liquidity are some of the most challenging aspects of running a business. Pressures from running the day to day of a business can take its toll so sometimes taking a step back and reviewing your operations can do wonders. There’s several things you can do to protect yourself and your business from any bumps in the road. Here are just a few:

  • Create a cashflow forecast sheet: Put together a simple Excel sheet that you can see the numbers on at a glance. Being able to refer to them quickly and easily can often mean you can see any potential problems before they even occur. If you have access to accounting software, the functionality may be able to do it for you. A good idea is to always have it open throughout the day to ensure you are spotting even the smallest changes. There’s no need to be obsessive, but to know what’s coming in and what’s going out is always sensible.
  • If applicable, implement a 50% upfront policy for any work you take on. This not only protects you against non-payers, but also secures work more effectively. If clients or customers have had to invest before they’ve started, they will be more inclined to see the work through and less likely to cancel unannounced. If you are able to apply retainer fees for work, this can be a great way of securing longer-term cash flow stability. 
  • Try to build up a good reserves account for unexpected bills: We all get them, so being prepared with an emergency fund is always sensible. Repairs, insurance, stock or staffing issues can all cause a business harm in the short term and if not prepared for, can impact on the long-term.
  • Where possible pay any tax due when its due: It’s difficult to emphasise this as everyone is aware that taxes need to be paid, but most people simply do not want to. Leaving bills unpaid, especially with HMRC or organisations that will fine, pursue and enforce payment should be a priority.
  • Think and plan ahead: It sounds simple, but there really is truth in this statement. Forecast, plan and look years ahead. If you don’t, you are living in a state of flux that could well mean you come unstuck easily. Having a plan in place, even if it drastically changes, can also be brilliant for mental health, which can be a real issue among directors. 

“Managing accounts receivable is essential to the success of your SME.”

Sonia Dorais, Chief Executive Officer, Chaser

On the face of it, having consistent cash flow seems relatively straightforward. You do your job, and you get paid for it. However, the data says it’s not as easy as that. Information gathered by Xero indicates that 52% of all invoices are paid late. This leaves the average small business with a £63,881 hole in their accounts. The reality is that many SMEs don’t have a full-time finance team that they can dedicate to chasing late payments. In order to follow up on a late invoice, people need to be pulled away from other tasks and spend time chasing that payment.

Time, of course, is also money. Around a third of SMEs in the UK spend more than £500 per month, just to chase late payments. These costs add to the existing debt, which can actually put a business in danger, impacting their cash flow.

If you’re relying on outdated pen and paper credit control solutions or multiple, disconnected spreadsheets, it can be easy to fail to follow up on invoices, have unspecified payment terms, and be too lenient with bad debtors. And, if the actual work required to chase debts is costing you more time than is necessary, then it’s costing you money to chase money!

One of the most important financial measures for SMEs is improving their accounts receivable. At its best, it is seamless, quick, and firm but polite. If any of these elements are missing, you need to enact some change.

Managing accounts receivable is essential to the success of your SME. Implementing effective credit control and debt collection measures allows you to ensure you are getting paid for the sales you have made – and that you have the cash you need to keep your business operational!

“Manage your cash flow by keeping three month’s minimum cover in the bank.”

Anna Morrish, Director, Quibble

Managing your cash flow and finances is imperative to your business’ success. We use a variety of tools, including Xero and YNAB (You Need A Budget).

We find the YNAB tool to be invaluable as it allows us to reconcile everything, create reports and see your net worth increase over time.

Further to this it allows you to plan in advance and budget for future events and new hires. It also helps you create positive habits to ensure you always have a minimum of three month’s worth of cash in the bank to cover the entire business, so you’re cash rich.

“Better pitching skills could improve your chances of funding.”

Kate Welch OBE DL, CEO, Social Enterprise Acumen CIC

This is the most challenging time I have known as a charity trustee or Chief Executive.  Having good financial management and forecasting is crucial to our survival as well as our mission to continue to make a difference in our community.

According to research from Sage Foundation, 1 in 3 not for profit organisations say their funding will be reduced by as much as half compared to last year, highlighting the long-term impact of the pandemic

However, there are financial management skills that can help with this – by improving financial literacy organisations can get better at managing finances but also at getting better funding.  Research shows that 67% say better skills at pitching for funding, including organisational financial literacy, could improve chances of funding in 2021.

“It’s easier to grow a business when a business is in the black.”

Jenny Knighting, CEO & Founder, Nutcracker Agency

I always have two budgets – one budget that’s based on costs and income – a worst case scenario forecast – and another budget that’s aspirational and allows for growth. All of my decisions are made on the worst case scenario budget.

I believe that all companies and organisations need to give more thought to the cost of leads and how many you need once you have worked out your ‘lead’ to ‘closed sale’ ratio – this needs to be factored in to grow. And too many businesses operate without a proper commercial strategy, which makes it much harder to forecast and to sustainably grow.

I also don’t understand businesses that operate without minimum three-month operating costs in savings – you have to cut your cloth according to your cash flow and too many businesses don’t stick to that and make rash decisions based on impulse rather than facts.

If a business is operating on insecure foundations, it does not lend itself to good decisions which, again, hinders growth.

“Boost your cash flow by offering your spare capacity through online business communities.”

Sunny Bird, Founder, Sunny Bird PR

A tip for managing cash flow, which has been fundamental in the running of my communications agency, has been using the online business community tool BBX UK.

By being a member, I have been able to exchange my spare capacity by providing PR services and online courses to members in exchange for other goods and services on the platform. This includes everything from design work, such as business cards and banners, to HR services, travel, accommodation and staff incentives for my team.

The recurring themes in these insights are: 

  • Manage your cash flow
  • Build up a 3 month buffer
  • Improve your accounts receivable
  • Charge a retainer
  • Improve financial literacy to pitch for funding 
  • Forecast cash-flow and expenses
  • Be realistic with your forecasting
  • Exchange services via online business platforms


At Addition, we’re all about making it add up. Our dedicated consultants can support your business growth this year (and every year, until you don’t need us anymore). Our tailored plans cover all the bases mentioned above – and more! Get in touch and start plotting your trajectory to success today!

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