A startup budget is a financial breakdown of your capital and expenses, and it’s both a planning and analytics tool. When you’re looking to raise capital, it also becomes an essential pitching aid.You’ll need this budget to know how much capital you’ll actually realistically need. You’ll need it to share accurate financial statements with the investors you’ll be pitching to. You’ll also need it to understand your break-even point, how much runway you have, and therefore, when you will need capital, whether it’s a pre-seed round or beyond. Even if you’re not fundraising, a budget helps you more fully understand your business expenses, which helps you determine when you may be able to hire employees, purchase equipment, and otherwise make investments (or cut down on expenditures) in your business, becoming an essential tool for resource allocation. Here’s how to build your startup budget. In this guide, we'll discuss: What a startup and fundraising budget should contain The steps to creating a budget Ways to analyze and adjust your fundraising budget as the company grows Building your startup's budgetOperating expenses Operating costs are the day-to-day expenses that a business incurs in order to run, giving yourself and investors an accurate picture of how much money it will take to keep your business going, which also helps with important financial projections. This includes both fixed and variable costs, such as: Rent Software subscriptions Payroll for any employees, including yourself Insurance Website hosting Advertising and marketing costs Capital expenses These are the expenses specifically incurred while starting a company and will typically include purchases that are absolutely necessary to prevent bloated startup costs. You’ll use this to determine how much money you’ll need (or have spent) on starting up your business. This includes: Equipment Office furniture Incorporation fees Legal fees Capital expenses include both startup assets and startup expenses:  Assets are costs that can be counted as liquid or non-liquid assets like computers or inventory, which means they aren’t fully tax deductible (since they’re included in your startup’s valuation).  Startup expenses like legal fees, on the other hand, are similar to operating expenses in that they can be fixed or variable, but they are usually tax deductible and are not part of your startup’s valuation. Revenue projectionsWithout revenue projections, your budget will only be made up of expenses and that’s not particularly useful. You’ll need to provide forecasts of revenue, making sure to account for all possible sources of revenue. Most investors like to see a few different scenarios: a forecast that’s a bit more conservative and a forecast that’s a bit more optimistic. Having both is useful for your own planning purposes, too, since projections are only ever estimates.Break-even pointWith your expenses and revenue projections, the last component of a startup budget is the very important break-even point, which is how much revenue your business will need to make in order to start generating a profit. The lower your break-even point, the sooner you’ll make a profit. Here’s the formula for calculating your break-even point on a monthly basis:Break Even Point = Fixed Costs / (Average Sales Price Per Unit - Variable Costs Per Unit)You’ll want to know this in order to help inform business planning and decisions, and investors will want to know this so that they have a sense of how much revenue your business will need to make before they may potentially start to profit and see a return on their investment. How to create your startup budgetPrepIf you haven’t already, make sure your business expenses and financials are separate from personal expenses. It’s a lot more work to produce accurate financial statements and as you start preparing to raise capital, you should get your finances in order with this basic accounting practice. You’ll also want to set your business up legally as a separate entity. Check out our article on setting up your business.ToolsYou can usually just use whichever tool you’re most comfortable with. If you already have an accounting system, check to see if there are built-in budgeting tools included. Better yet, if you’re working with an accountant, they may have already created your budget. In this case, you’ll want to involve them in your plans for raising capital, while you learn to read your numbers and understand your business finances.Some examples of accounting software that come with business budgeting features include:  Quickbooks Xero Wave You can also go with a simple spreadsheet program such as Excel or Google Sheets. There are pre-designed templates available online specifically for startup budgeting and if you’re particularly good with these tools, you can create visual charts using just spreadsheet data.StepsReady? Let’s build your startup budget step by step.Determine all capital costsIf you’ve already started your business, then you should already know what your capital costs are. Otherwise, make sure to be fairly conservative with what you consider a capital cost. (Do you really need those fancy office chairs in order to start your business?)Determine all operating costs You should always round up variable costs, and make sure to account for increasing variable costs as your business grows and scales. Some experts suggest even 2x or 3x for certain expense categories like marketing or legal.Estimate funding sourcesWhen starting a business, you’ll need to determine where the initial capital will come from. It’s possible that you bootstrap and won’t need a lot to start off, but costs can add up so you should make sure to calculate any funding, even personal funds, as a funding source rather than continually pay initial business costs out of your personal bank accounts. Include any other funding sources as well, including any capital you’re hoping to raise. Tip: While working through your startup budget, try and plug a few different numbers in to see how that impacts your break-even point. Estimate monthly revenueYou can use past sales data if you have that available, making sure to account for any existing patterns in revenue (i.e. do sales tend to go up during certain periods, have you seen a consistent growth rate?). If not, you’ll need to make a few assumptions based on customer research and TAM, including comparing your estimates with industry averages based on common factors such as size, market share, stage of business, and customer segment. As mentioned above, don’t forget to create at least two different forecasts of monthly revenue, one to account for a conservative growth rate and one to account for an optimistic growth rate. Analyze and adjustTally up all your costs (technically, you should be having your accounting software or spreadsheet program do this automatically), then analyze and adjust your budget as needed. For example, if your break-even point is much higher than anticipated, then you may want to look at reducing expenses or figuring out alternative sources of revenue. Or, it may be a signal that you’ll need to raise a fairly sizable amount of capital. And that may be fine if your market demands it. If that’s the case, go back and adjust your funding sources to account for what you think you need and the impact that capital may have on your growth rate, and subsequently, your monthly revenue projections. And you’re done! (For now.) Your budget is a tool you’ll continue to use throughout your business.There’s a lot riding on your budget: fundraising too early or borrowing too much can come with unintended outcomes like giving up equity too early or spending too much time early on things that take time away from actually building your business. Raising capital can take a lot of time, so you need to know the specifics of what and when before you get to who and even how.  Once you’ve created your startup budget, you may see that you’ll need more money than you initially thought, or on the other hand, that you’ll need less, and that may impact the kind of capital you want to raise.