How to Budget Your Online Store

Budget Online storeLike any good business venture, if you’ve crunched the numbers in the financial projections of your business plan and the answer is a definitive “yes”, then you’re good to go.

A vital part of planning any business venture is the preparation of a budget covering both the start-up phase and first year of operation. You should also extend this to cover the next few years, at least in draft form, allowing for reinvestment and growth.

The costs incurred can be understood in three groups, including: once-off initial expenses, recurring costs and other incidental costs due to growth or other reasons (e.g. equipment failure, etc).

Four Important Things to Budget For…

1. Budget Your Time
Even though it is your business, that doesn’t mean your time is free. Running and online shop is a time consuming business; you may find it helpful to keep a diary of how you spend your time, initially, as this can help you to become more time (and cost) efficient in the future. Decide how much your time costs or how much it would cost if you had to employ someone to do the job. Perhaps you could even include the minimum wage in your budget plan and make sure this is covered. If it takes you ten minutes to prepare a parcel for dispatch, then apply the appropriate proportion of an hour’s pay.

Be prepared to spend time on your online shop. Slow management, poor merchandising and a lack of simple marketing techniques can cause your shop to become very quiet. Whilst your financial budget does not really need to worry about time as a factor if you are willing to dedicate to your venture, you will need to allow for time on a regular basis to offer a great shopfront and a high level of service.

2. Budget for The Right Software

There are likely to be costs associated with your shopping cart setup and hosting. Any necessary professional services such as design or marketing will also be extra. Even if you choose a free car system (or a DIY package), you may incur costs associated with hosting, security, integration and possibly software licensing.

For shopping cart packages that are all inclusive, make your choice on software quality and support offered. Be cautious in this area, as unexpected hidden costs later on could prove damaging to your business! It is common for both up-front costs and regular monthly (or yearly costs) to be incurred in this area. Be sure of exactly what an all inclusive package is going to give you before making your choice. Start shopping around now and compare options for competitive rates and features.

3. Budget for Stock and Equipment
Will you require new hardware or equipment to trade proficiently? Are you using your personal computer and printer? If so, might you need to replace them for business use in the future? – If so – allow for these costs from day one!
Will you need specialized hardware (e.g. label printer), or will you need capital to purchase packing materials or stock for your online shop?
Are you also the manufacturer? Will you cope with larger orders? Make sure that your goal matches what is physically possible.
Will you need to purchase stock upfront? Factor this cost into your set-up and project clear goals to make back the money within realistic timeframes.
If you are planning to purchase stock upon demand, or to use a drop-shipper to provide this portion of your service, then be very cautious – online shoppers tend to be very impatient and are accustomed to rapid dispatch and delivery of their goods!
When accounting for Postage and Packing costs, factor in postage, cost of materials and then round up slightly to ensure that you do not lose out – remember that it takes time to pack goods property and well packaged goods are more likely to arrive in the condition which the customer will expect.

4. Budget for Banking Charges

One of the most underestimated groups of costs is those associated with banking (or payment processing). While most business bank accounts come with a free period, make sure you examine and account for the costs which will eventually apply.
There will also be initial fees and monthly subscriptions associated with Internet Merchant Accounts. Your payment provider may levy similar charges in addition to per-transaction charges. Look for a package that offers this included in one price and don’t be fooled by cheaper option that result in high excessive costs.
You must balance projected income against these costs, and account for per-transaction charges within product pricing. For example, you would not want to offer a product for sale at R10 if the minimum charge for processing a transaction was R12!

You have researched your customers and product -  now Prepare a clear and detailed Budget with no stones unturned! As you do so, realize that every bit of money you will be spending is your investment. Begin right away by ploughing in the time you will be spending on your active shop to do sufficient research with software providers, banks, shippers and manufacturers. Consult someone you respect and trust on you budget. If you plan to sell in excess of R10 000 a month we recommend that you consult your accountant for a professional eye.


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