Wednesday 16 March 2022

How to budget the launch of the project: the main stages, mistakes, tips + example

Budgeting is one of the most important stages in planning the launch of a project.

Anyway, without the correct distribution of monetary resources, you will not go far. Especially if these resources are in short supply, as is often the case with novice entrepreneurs.

On how correctly and effectively you make a budget will depend on the effectiveness of all subsequent steps and, in general, the feasibility of your ideas.

Many entrepreneurs make a big mistake when they make a decision to start creating a product or launch a project without first making a budget or making it "by eye".

Many people imagine the budget simply as a certain amount that they are ready to invest in the project. But if this amount is not compared with the expected costs and is not divided into specific cost items, then most likely this amount will remain just an amount that will be spent on the "needs of the project".

With a high degree of probability, this approach will lead to the fact that you will spend your money in the most inefficient way, without implementing the project. In other words, the money will run out before your business even starts.

The budget is primarily a plan and forecast that gives team members and all the people involved in the project a clearer idea and understanding of what funds are needed to bring the idea to life and how exactly you will spend them.

Budgeting takes place in three stages. Let's consider in detail each of them.

Goal setting and prioritization of objectives

The first place to start is to define your goals.

It's not enough to just take "Start a Business" as a goal.

To set a goal, use the SMART framework, which says that the goal should be specific, measurable, achievable, relevant and have a time frame.

Therefore, it is worth specifying your goal by adding to it dates, deadlines, context and a detailed description of how and what should be done to launch the project.

As soon as you have identified the main goal and compared it with your vision of the development of your idea, you need to make a detailed list of tasks that will ensure the achievement of the goal.

Budgeting begins primarily with gathering information regarding the direction of future spending.

Ask yourself a simple question: "What will the money be needed for to implement the project?"

While you should not think about the amounts and specific figures that will have to be spent. It is important to simply list what actions you need to take to achieve the goal.

What exactly needs to be done? Which of these will require money?

To facilitate the process of making a list of tasks, divide them into 3 large sections: development, production and promotion.

Often, all the tasks associated with launching a project can be categorized into one of these categories.

Break down your task list into three parts and list all the tasks that fall into each of the sections.

Don't try to immediately filter out tasks that you think are unnecessary. Include everything you may need to implement the idea.

Once you've made a comprehensive to-do list, move on to prioritizing the list.

Enter the list in the table, where in the second column you can specify the priority of each of the tasks.

To do this, rate each task according to the importance and degree of impact on the success of the project on a scale from 1 to 4, where 1 is the minimum importance, and 4 is the maximum.

Once you've evaluated the tasks by their importance to achieving the key goal, take another look at the list and supplement it with the secondary areas of spending that you missed first.

In addition to the obvious points, think about those items of expenditure that may not be related to tasks, but only ensure the possibility of their implementation.

We are talking about paid services and services (instant messengers, project management services, Internet fees, transport, etc.), which can play, at first glance, a minor role and require little money. But the fact is that they are often the source of unforeseen expenses and the cause of holes in the budget, which lead to a shortage of funds.

Therefore, make sure that the section of secondary expenses includes transportation and telecommunications costs, rental of premises and equipment, as well as large and small payments of all services that you use by subscription.

Determination of expected costs

Once the to-do list is ready and prioritized, it's time to add numbers.

Determine the duration of preparation for the launch of the business and assume how long the stage of development, preparation and launch of the project will take.

It is important to calculate as accurately as possible how much time will pass before the moment when you can start earning and get the first operating profit to finance the further life of the project.

It is very important not to overestimate your capabilities and to estimate the preparation time as accurately as possible, taking into account all possible delays, postponements and unforeseen situations.

Based on this information, it will be clear for how long the budget is calculated and how quickly you can run out of money.

Once you've estimated the overall time horizon of your budget, move on to estimating the duration of each of the tasks to finally understand how much money it will take to implement your ideas. This will give you an understanding of how much spending falls on each of the items.

It is best to measure tasks in man-hours.

But do not be very optimistic about your capabilities and the speed of completing tasks. While you are still on the shore, it seems to you that you will always have the maximum motivation and desire to work. Later, everything can change.

First difficulties and inflated expectations can easily kill your motivation to keep moving at a fast pace or to continue altogether. At such moments, progress will be minimal. And costs can remain at the same level.

Therefore, soberly assess your capabilities.

Evaluate each of the tasks in man hours and translate it into a monetary equivalent to get the total cost of completing each task.

Write down what you got. And add to this 10% to make sure that you have taken into account possible errors in the forecasts.

Budget optimization and approval

The third stage of budgeting is its final moderation, optimization and approval.

When optimizing the budget, use the Pareto principle, which states that 20% of the tasks bring 80% of the result, and the remaining 80% of the tasks bring only 20% of the result.

Budget optimization is about cutting costs for those tasks and areas that have the least impact and play the least role in your success. Based on your to-do list and their level of importance, identify 20% of tasks that can provide 80% success. These are tasks with importance levels 3 and 4. For them, you can increase the expected costs.

As for tasks with importance levels 1 and 2, they can be removed from the list or significantly reduce the cost of them. These are just the 80% of tasks and actions that take time and money, but provide only a small fraction of your progress.

If in the first two stages you have not yet included the item "Unforeseen expenses" in your budget, then it's time to do it now.

Trust my experience. Even if it seems to you that you have very scrupulously listed all the processes that will require financing, in the process of work there will necessarily be things that will require money.

If you do not take into account the possibility of such expenses in advance, then later this mistake can result in an excess of your budget and unexpected expenses that will disrupt your plans.

Sample budget for launching a project

Let's consider an example of a draft budget for launching a Kick starter campaign. As an example, consider such a product for a crowdfunding campaign as a diary with a mobile application that connects a notebook with online calendars.

Main goal: Development of a prototype of a diary with a mobile application with the subsequent launch and conduct of a Kick starter campaign in 4 months.

The purpose of the budget: To draw up a detailed plan of expenses related to the development of a prototype of the product and the launch of a crowdfunding campaign in 4 months.
Budgeting for the launch of the project takes place in three stages:

  • Goal-setting and prioritization
  • Determination of expected costs
  • Optimization and approval
  • And the project launch budget itself can be divided into three parts: development (prototyping a product and creating a strategy), production (creating a product), promotion (marketing and advertising campaigns to attract customers).

Budget is an integral part of a successful business. Without a spending plan, your cost part will easily outweigh the revenue part, and the costs will exceed all your limits.

So take your budget seriously. And be sure to put it on paper or digitally. But don't expect to be able to keep everything in your head. Because it doesn't work (tested by personal experience).

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