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Starting Smart

If your outgo exceeds your income,then your upkeep will be your downfall.

Running a profitable new business requires adequate cash flow and that operating expenses consistently be met. Once you've settled on a business idea and have completed adequate preliminary research, the time has come to develop your first estimated annual budget.

Even the most conscientious person who tries to budget for an entire year may underestimate or overlook a variety of everyday expenses. Budgeting problems can result from miscalculations, overspending, or, quite simply, growing too fast. Before jumping in, keep in mind that the budget for your first year must include both one-time start-up costs and ongoing monthly expenses.

Whatever your situation, a good budgeting rule of thumb is to err on the side of caution. This means it's usually best to overestimate your expenses-and the time it will take until your business can cover its own costs-and underestimate potential profits. Be sure to incorporate advice from others who are running businesses similar to your own. Better safe than sorry.

To plan a realistic budget, many business counselors suggest calculating both best-case and worst-case financial estimates, then settling on numbers that fall somewhere in between. Others feel that a visit to an accountant can prove invaluable in helping to project your business' expenses, revenues and cash flow. There's no single, foolproof method. As a result, our entrepreneurs, who are already operating successful ventures, have returned to share the procedures they followed and the lessons they've learned about planning an accurate budget.

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This article was originally published in the September 1996 print edition of Entrepreneur with the headline: Starting Smart.

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