How to create a business budget: How to create a business budget in 6 easy steps

How to create a business budget

For example, you might increase production costs to get more raw materials to match the increasing popularity of certain products. Or if you are running a SaaS business, you might need to invest more budget in certain seasons to get more clients. That means tallying all your revenue (not profit) sources every month. In case you don’t know the difference between revenue and profit, revenue is all the money your business generates before expenses.

  • Or, if you run a brick-and-mortar retail business, you may only have one source of income from your store sales.
  • When finding your income, make sure to calculate for revenue, not profit.
  • If you’ve been in business for a while, that’ll certainly help the accuracy of those guesses (as you might, well, guess).
  • However, there are many strategies you can use to help you budget more efficiently.
  • Be prepared to tackle the unexpected one-time expenses that come your way.

However, you may choose to handle it yourself or restrict input to senior management. Master budgets are usually presented in an either monthly or quarterly format, displaying expenses over the fiscal year. If you don’t have a physical product, focus on projected sales, revenue, salaries, and consultant costs. Figures in these industries—whether accounting, legal services, creative, or insurance—can vary greatly, which means budgets need flexibility. These figures are reliant on the number of people required to provide the service, the cost of their time, and fluctuating customer demand.

Another tip is to wait to make purchases until the start of a new billing cycle or to take full advantage of payment terms offered by suppliers and any creditors. Some thoughtful maneuvering here could provide the business owner with much-needed breathing and expansion room. After you’ve researched this information, you should then match the business’s revenue with expenses.

Calculate your gross profit.

You can be making a profit on paper, but if you don’t have money in the bank, your business won’t be able to pay its bills. What are the fixed assets (sometimes called capital expenditures) such as furniture, equipment, and vehicles needed to set up your location and start your business? Fixed assets also include computers and machinery, furniture, and anything for your office, store, or warehouse that is needed to set up your business. Not every accounting software application offers budgeting capability, but the following small business accounting software applications do. When budgeting, just assume that your business will have at least one major unexpected expense during the year.

How to create a business budget

A budget is a detailed plan that outlines where you’ll spend your money monthly or annually. To generate an income statement, you can use this income statement Google Sheet template to input your revenue and expenses. Grant Cardone likes to say “Cash flow is king.” Where does your money come from? For small business budgeting to work, you must have the answers to these questions. Separating the two helps you treat your small business like an independent entity.

Now that you understand why business budget creation is so important, let’s jump into how to do it. Before we jump into how to create a business budget, let’s quickly cover what a business budget is—and why it’s so important for your small business. If you have a service business, you may not need many variable expenses.

Fixed costs

Whether or not you’ve run a business before, we all know that one-time costs don’t come when it’s convenient. It’s the day before you host your entire family for Thanksgiving and the refrigerator goes out. You’re on the way to the biggest presentation of your career and your car stalls. When just launching your business, creating a budget is one of those things that can fall by the wayside. If your business is operating with a significant amount of profit or is going through a boom, it might not seem important to create a business budget.

It’s unrealistic to expect that you will achieve every business goal and reach your estimates every month. In an annual cycle, there will be months where your business will be booming, and there may be a few months where sales are slow. Due to seasonal inconsistency and industry trends, you will have to spend cash effectively so that the business isn’t at risk of shutting down during slower periods. This step will be useful for those businesses which have been functional for more than a year and are dependent on suppliers to sell products.

Variable expenses will, by definition, change from month to month. When your profits are higher than expected, you can spend more on the variables that will help your business scale faster. But when your profits are lower than expected, consider cutting these variable costs until you can get your profits up.

A budget isn’t just a line of numbers with categories listed at the top. If you aren’t budgeting, you aren’t laying out the priorities and strategies for your business, and you have no idea where you’ll end up. One of the most amazing perks of running a profitable business isn’t getting but giving! Be generous with your products, services and profits along the way.

When you have enough cash saved, you can pay advance amounts to your suppliers as compensation for the times when you are unable to make payments. The main goal here is to find efficient ways to reduce cost of doing business. Before you can focus on the budget, however, you need to identify what aspects of your business you’d like to improve. This will allow you to decide what can be done with your funds.

Better to set aside money for an emergency that doesn’t happen than to be blindsided. So take some time to identify any other fixed costs necessary to run your business. Once you’ve identified them, sum them up to get a precise figure of your fixed costs on a month-to-month basis. Budgeting can be intimidating, but don’t worry—you don’t need a financial or accounting background to create a small business budget.

  • It outlines key information on both the current state of your finances (including income and expenses) and your long-term financial goals.
  • To further break down your business budget, let’s now take a look at the existing components of a generic budget.
  • Then, next to each category, list the total amount you’ve budgeted.
  • Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
  • Like Xero, Zoho Books lets you enter budget numbers for a single period, then specify a percentage increase or decrease in budgeted numbers.

To keep things realistic, it’s a good idea to analyze previously recorded revenue. Businesses must track revenue periodically on a monthly, quarterly and annual basis. Although you might be tempted to spend any surplus of income on variable expenses, put some aside into an emergency fund instead. That way, you’ll be ready when equipment breaks down and needs replacing, or you need to quickly replace inventory that is damaged by flooding. Of course, there’s always the option for a small business loan — but more options are better than fewer.

Other Miscellaneous Costs

Compared to flexible budgets, static budgets encourage discipline in spending on projects and clearly monitor sales and revenue. This is because if the budget is never exceeded, the numbers are clear. It’s also useful for reaching future financial goals for your business, when the funds required are kept in check due to static budgets. Your estimated revenue is the total gross income your business pulls in over the selected time period. This differs from profit because, to determine profit, you subtract expenses and production costs and count what is left. Once you have gathered all the information from the previous steps, it’s time to create your budget.

How to create a business budget

Your business budget can help you take advantage and capitalise on the busy seasons, and teach you how to cut down during the tougher months of the year. It will show you what’s working and what isn’t, and what you can do about it. Creating a useful business budget takes careful forward planning and a sober approach to business growth. One way to do this is to lay out the process in a series of steps. In this blog post, we’ll take you through the business budget in full. We’ll explain what it is and why it’s important, before we lay out the components of any complete business budget.

Operating budget

Things always get messy when you mix your personal funds with your business funds. Keep your records clean by having separate accounts and budgets for home and work. You don’t have to form a legal corporation or get a tax ID number to create your business account. You can open a simple sole proprietorship account in the DBA (doing business as) for using your social security number.

Tips for Creating Your Business Startup Budget

If you don’t keep an eye on your taxes, your business will fail. How much you’ll owe depends on how much you make, but a good rule of thumb is to set aside 25% of your net profit for taxes. You might even want to create a separate bank account to stash your tax money just to make sure you don’t overspend. And if you haven’t already, consider meeting with a tax professional to create a specific plan for your business. So start with what you know, and if you don’t know something—like what kind of unexpected costs might pop up next quarter—just give it your best guess.

The $2,150 represents your total cash balance for the month, not your profit. If you are selling products, you might want to calculate your break-even point to include with your budget. The break-even point shows when you will start making a profit on each sale.