For most new, small businesses, there will be a period of time before any money is made from any sales. It is for this period you will need to decide how much it will cost you personally to live and how much is needed to pay any wages and suppliers.

The amount of money you need will depend on the following:

Personal Budget
This is what you need to live on. Write down all your personal costs such as: mortgage, food, rent, loans, clothes, entertainment and so on. It may be a while before you make any money, so work out your living costs for the length of time you think you will start making money. Your personal budget is important, as it will help you work out the price for your product or service.

Starting up costs
This will be the cost of starting your business, which can be categorised into:

• initial capital outlay - this is the costs of starting up which will include stock and materials, equipment, arrangement fees for loans, legal costs, installation costs, furniture and decorations, premises, vehicle and so on.
• running costs - these are items you will have to pay for on an ongoing basis for your business and will include such things as: rent, rates, lighting, heating, telephone, postage, bad debts, bank charges, insurance, stationery, travelling, income tax, VAT, National Insurance, professional fees, advertising, publicity, employee wages, maintenance, subscriptions and odds and ends.

Once you have worked out your starting up and running budgets, then you can start on your forecasting.

Suggested next reading: Forecasting