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6 Steps To A Better Business Budget

June 16, 2021
Bill Kimball

Deanna deBara is an entrepreneur, speaker, and freelance writer who specializes in business and productivity topics. When she’s not busy writing, she enjoys exploring the Pacific Northwest with her husband and dog. See more of her work and learn more about her services at deannadebara.com. When you build a business, there are a lot of things to stay on top of, from marketing and finding new clients to building a website and establishing your digital presence.

Track your small business’s month-by-month financials with this easily fillable 12-month business budget template. The template includes profit and loss category rows for cost of goods sold , sales and marketing costs, labor costs, and earnings before interest and taxes .

Let’s take a look at how to create a small business budget in five simple, straightforward steps. This version allows you to perform a detailed analysis of your business expenses and cost of goods sold if you are selling multiple products. Columns are also included for calculating the Percentage of Total Sales for each product and the various expenses. You can also reevaluate your essential costs if you cannot get your budget to balance. Go through them with a trusted friend or colleague to determine if they are all truly essential to start your business. It can be difficult to forecast your income when starting out, so begin with the number you will need to hit to break even, and then use that number to come up with an educated guess.

Compare Budgeting Software

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. In other words, you don’t need a crystal ball to run a business, but you do need to learn how to create a business budget.

You can also factor in cash, inventory, accounts receivable, net fixed assets, and long-term debt to gain month-by-month, quarterly, and annual insight into your business’s time-sensitive budget. Use this small business budget template to track and manage your business’s finances. Easily track and view monthly income and expenses to calculate total profits. The completed budget will help you gauge how close you are to reaching your financial goals. A common money problem for small businesses without much working capital is cash flow. Cash flow refers to the arrival of revenue and due dates of your bills.

What Is A Business Budget?

Most business owners didn’t get into the game to learn how to create a business budget, sure. So, how do you make budgeting efficient so you can get back to the best parts of business ownership?

Build some financial padding into your budget to cover you in the event of unexpected costs; think of this money as an airbag that’s only there to be used in a true emergency. Your losses are how long you will go without turning a profit while accumulating overhead expenses. Losses are a result of a new business needing time to build a customer base, and your budget must reflect them. Emergencies and opportunities may come when you least expect them, so smart budgeting accounts for one-time and unpredictable spend.

When you run into budget problems, it’s a good idea to review common expense areas and financial practices before you begin cutting costs. One of the reasons for budgeting is of course to help you determine whether you will be able to afford upgrades, new construction, asset purchases, etc. However, this budget spreadsheet is mainly for comparing your operating income and expenses to make sure that in your normal business activities you are earning more than you are spending. You would typically look at your Net Income to determine whether you will be able to expand your business, make large asset purchases, etc. These are things you will need to pay for more than once that are not tied to your business’s product or service, such as subcontractors, payroll, software subscriptions, website fees, rent or advertising fees. For this step, start by brainstorming all of your potential expenses on a budget worksheet.

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Business Budgeting Faqs

If you want to see your financials for a certain month, select the reporting month from the dropdown list on line 4. Next, use the Monthly Actuals tab to enter your actual revenue and expense numbers as they come in each month. Unfortunately, not everything can be written off as a business expense. For instance, if you work from home, personal living expenses can’t be deducted. However, if your business is in your home, certain expenses related to utilities, mortgage interest, and insurance may be tax deductible.

You’ve gathered all of your income sources and all of your expenses. Pulling it all together to get a comprehensive view of your financial standing for the month. 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.

These can include things like usage-based utilities , shipping costs, sales commissions or travel costs. Once these costs are determined, add them together to get your total fixed cost expenses for the month.

Prior to buying or opening a business, construct a spreadsheet to estimate what total dollar amount and percentage of your revenue will need to be allocated toward raw materials and other costs. It’s a good idea to contact any suppliers you’d have to work with before you continue on. It’s also important you understand the different types of budgets you’ll need to set up for your small business and how to implement them. For example, many business owners must make rent or mortgage payments.

However, this is dependent upon the size of the business and how much is spent. For instance, staff training, incorporation fees, and market research/product analysis can be deducted from your taxes in most cases.

The 4 Most Common Reasons A Small Business Fails

Other options include investment consultants, controllers, or even a bookkeeper. Getting some financial help can make your budgeting easier and help you accurately pay taxes.

Drafting a budget is easiest if you wrote one the previous year. Those projections, coupled with the actual income and expense figures you realized, would form the basis of your estimates for the coming year. But if you’re reading this article, the odds are that you’ve never written a budget for your business before. • Fixed costs are those expenses that remain the same, whether or not your sales rise or fall.

Just don’t forget to factor those expenses into your budget as well. Over time, you’ll get a sense of how these expenses fluctuate with your business performance or during certain months, which can help you make more accurate financial projections and budget accordingly.

They also have utility bills, payroll expenses, cost of goods sold expenses , interest, and tax payments. The point is every business owner should consider these items and any other costs specifically associated with the business when setting up shop or taking over an existing business. Review your budget every few months and shop around for new suppliers to save money on products or services for your business.

In fact, many small business owners find themselves planning just a month or two ahead because business can be quite volatile and unexpected expenses can throw off revenue assumptions. Establishing a budget planning calendar can be an effective tool for business owners to ensure they have enough capital to meet their business needs. Because of this, it’s wise to factor in some slack and make sure that you have more than enough money socked away before expanding the business or taking on new employees. A separate section under business expenses calculates the Net Income Before Taxes by subtracting the Total Expenses from Total Income. This helps you make a simple estimate of the income taxes, assuming all the Expenses are tax deductible.

Yes, if they fall under an ordinary or necessary business expense. From an accounting perspective, there are three major types of expenses–Fixed, Variable, and Periodic.

  • Your sales figures (which you can access using the Profit & Loss report function in FreshBooks) are a great place to start.
  • Above all, once you have a clear sense of your profitability for the month, you can use it to make the right financial decisions for your small business moving forward.
  • The operating budget is associated with the income-generating activities of the firm like sales and production.
  • Then, once a month, put in your company’s actual results to track how you’re doing.
  • Experiment as much as you like and see what the outcomes look like.

You may consider increasing your marketing budget if your goal is to bring in new customers. If you’re making a net profit, you may consider investing that back into your business with needed upgrades. Once you have determined gain and loss for a month, dive even deeper to determine your cash flow. But most of all, a budget gives you more certainty and confidence. You get a clearer picture of the state of your business and you know where you stand.

Free Small Business Budget Templates

Thorough business budgeting gives you the financial insights you need to make the right decisions for your business to grow, scale, and prosper in the future. Many of your business expenses will be regular expenses that you pay for each month, whether they’re fixed or variable costs.