Budget for the worst, hustle for the best 💸

It’s been the summer of capital budgets over here. Some clients are deep in the throes of business planning, and some are plotting expansions and relocations. But in all cases, creating the Capital Budget* is among the non-negotiable first steps.

Most of our clients come to us with an existing "how much is this gonna cost me" budget; some are pretty thorough, and some not so much, but when we take what they’ve got, stick it into our Capital Budget framework and work with them to fill in all the missing line items, one thing is true across the board…

Everyone underestimates how much it’s going to cost to get open.

Why is this the case? I’m not a licensed psychologist, but I do play one on TV. My theory is that our mental approach to planning when we want something to happen subconsciously pushes us toward the doable/achievable answers. This is a fundamentally different approach than the one we take when we’re trying to avoid something terrible from happening. 

😉  When our goal is to show that opening this business is manageable, we want that budget to be as low as we can get away with. Our desire wants us to estimate low.

😧  When our goal is to ensure that we don’t run out of money before we even open for business, we need that budget to be as high as it might actually end up being. Our fear reminds us to estimate high.

Most of the time when I explain the “new” approach and walk clients through the Capital Budget, the moment I finish talking, our client’s face reads somewhere between disappointment and despondence. 

And then I immediately feel terrible. I feel terrible that I’m the messenger of $hitty news, and I have to stop my very loud inner retailer from backpedaling and trying to adjust the numbers to make them less painful. But my job is to help people get their business open/relocate/expand AND to help them be successful when they get there. My job is Real Talk, Always.

The Capital Budget has 40+ line items, because you have to spend money on a whole lot of stuff. And that stuff just costs a whole lot more than you’d expect. Hence the “you just crushed my dream” face.

💸  So what’s behind the financial ambush? Here are some of the expenses that get left out or seriously underestimated:

 • Security deposits and prepaid rent due at lease signing

 • Legal fees for lease review

 • Architecture and engineering fees

 • General contracting costs

 • Permits, licenses, and insurance binders

 • Music, surveillance, and security systems

 • Exterior signage

 • Labor costs during pre-opening and training weeks

I could go on…

Delivering the Real Talk, Always is never fun, and it gives me a not-insignificant amount of anxiety. But I know it has to be done. And it’s usually only a day or two before the client reaches out to say, “yeah, that was shocking, but I’d much rather know and plan for it now.”

The stress of looking at a $350,000 budget that you thought was going to be $50,000 is real. But so are the numbers. And this stress is a whole lot better than the stress of not having enough money to get open after you’ve already signed a lease.  

I do try to remind clients that this is just the budget, and the goal is to be conservative – you can absolutely find ways to economize along the way, but it’s way better to have the money and not need it, than to need the money and not have it. 

* I’m capitalizing Capital Budget here, because people can define a “capital budget” in different ways. In Pedal Land, the Capital Budget is one of our core business planning exercises, and we use a proprietary financial framework with a 40+ retail-specific line items to help our clients estimate how much cash it'll take to get from today to opening day.