When you have a business idea that looks promising, the next step is to create a budget. But a single, rigid budget can often feel like a shot in the dark, leaving you with little flexibility. A better approach is to create not one, but three distinct budgets. This simple method, which I often recommend to students, provides a strategic framework that can help you navigate the early stages of your business and make smarter decisions about your finances.
By creating a Minimal, Ideal, and “Pie-in-the-Sky” budget, you’ll have a complete picture of your financial needs, from your most basic starting point to your grandest vision.
1. The Minimal Budget: Your Launchpad to Profit
The first budget we create is the minimal budget. The goal here is to identify the absolute essentials required to make money. We strip away all the nice-to-haves and focus on the must-haves. For a new photographer, for instance, a minimal budget might include just a camera and a single lens. You might have to use natural light and shoot outdoors, but you have the core equipment to perform the service and generate revenue. This budget serves as a crucial reality check. If your business can’t be profitable with this bare-bones setup, it’s a clear signal that the concept needs to be re-evaluated.
2. The Ideal Budget: Your Sweet Spot for Operation
Next, we move to the ideal budget. This is the budget that includes all the equipment and resources you believe you would truly need to operate your business effectively and comfortably. It’s what you would ideally like to have to perform your work well, without being overly extravagant. In our photographer example, the ideal budget would add items like a tripod, a basic lighting kit, and a few essential accessories. This budget represents a realistic and actionable goal—what you would aim for as soon as your business starts to gain traction.
3. The “Pie-in-the-Sky” Budget: Your Vision for Success
The final budget is the “pie-in-the-sky” or high-end budget. This is where you get to dream big. You ask yourself: If I had all the money in the world, what would my business look like? What kind of equipment would I have? What services could I offer? For the photographer, this budget might include a state-of-the-art studio, multiple high-end camera bodies and expensive lenses, a dedicated editing suite, and even a team of assistants. This budget allows you to envision the ultimate potential of your business and sets ambitious long-term goals.
How These Budgets Provide Flexibility
Having these three budgets can provide immense flexibility when you’re balancing income and expenses later on.
- A Strategic Reality Check: It may be that your business can afford to have that high-end equipment because the revenue you bring in from those premium services can support it. The “pie-in-the-sky” budget isn’t just a fantasy; it’s a tool for analyzing your ultimate profitability.
- The Go/No-Go Decision: On the other hand, you might find that your “ideal” budget—the middle one—is simply not profitable. The costs are too high to support the income you expect to bring in. In that case, you know you have to scrap some of those things and move back towards the more achievable minimal budget.
- Dynamic Planning: This three-tiered approach allows you to constantly adjust and optimize. It gives you a clear roadmap, from starting small and lean to expanding strategically as your revenue grows.
In the end, this method turns budgeting from a static exercise into a dynamic, flexible tool. It gives you the power to make informed decisions and ensures that your financial planning is aligned with every stage of your business’s growth.