How to Create a Small Business Budget in 8 Simple Steps

how to make a budget for a business

If you keep following these budgeting principles and growing your profit, you’ll start to see the rewards. 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.

Small businesses can be extremely volatile as they are more susceptible to industry downturns than larger, more diversified competitors. If you’re operating with a poorly-written budget – or worse, no budget at all – it’s going to be difficult to find lasting success. Plus, making a budget right from the beginning gives your business a boost. Bookkeeping isn’t for everyone, especially when you’re also trying to stay on top of a growing business—but at Bench, bookkeeping is what we do best.

How to create a budget for a business

Because of this, it’s wise to factor in some slack and make sure that you have more than enough money socked away (or coming in) before expanding the business or taking on new employees. After you’ve researched this information, you should then match the business’s revenue with expenses. The goal is to figure out what an average weekly expense for overhead, utilities, labor, raw materials, etc. would look like. Based on this information, you may then be able to estimate or forecast whether you’ll have enough extra money to expand the business or to tuck away some money into savings. On the flip side, owners may realize that in order to have three employees instead of two, the business will have to generate more in revenue each week.

After you have set your spending goals, you will need to arrange your expenses by category. This will help you stay organized and on track with your budget. For example, you may want to create a separate budget for marketing, inventory, and rent.

Forecast future sales and costs

You should be able to estimate the sales you’ll be making in the next week, month and year. Knowing your fixed costs tells you the bare minimum that your company needs to survive. It’s important to research these expenses and make sure you’re getting the best deal on each cost. For example, if your business involves manufacturing products, it’s likely to have higher fixed costs related to space and equipment. These costs, however, will be much lower or even non-existent for an online consulting business operating from home. The majority of cash collections are from sales and the bulk of cash payments are for inventory.

  • The budget provides percentage increases or decreases from the prior year, and 2 categories have no change.
  • Many businesses have failed in the past by overestimating revenue and borrowing more cash to meet operational needs.
  • For example, if you estimate sales in month one to be $50,000 and your collection percentage is 85%, show your cash for the month to be $42,500.
  • Protecting your pay-yourself-first line items in the budget will help ensure you reach the important financial milestones that matter to you.
  • Any wiggle room you have here comes from the money available for wants or from saving on your necessities, not your emergency fund and retirement savings.

Here are a couple of steps you can take when creating your budget. Monthly or quarterly, compare your actual income and expense numbers to your budgeted numbers. Regular tracking helps identify financial pitfalls before they become unmanageable. Some software programs even let you set multiple budget scenarios and have “cloning” features, which simplify the budgeting process after the first year. You can create a comprehensive budget for your small business right from Google Sheets. Simply navigate to your Sheets and then click on Template Gallery.

Learn Small Business Budgets for Different Types of Company

You can also factor in contingency funds for unforeseen circumstances like equipment failure. Paying yourself means funding financial goals and plans before spending your discretionary money. Many people forget to include these kinds of goals in their budgets, assuming they will meet their goals with whatever is “left over” how to make a budget for a business at the end of the month. But planning on using leftover money often means your goals are left out. So the next step in creating a sustainable budget is to create line items in your budget for your major goals. Following a budget is important to your business because it allows a company to track and manage their finances.

how to make a budget for a business

We will discuss emergency funds in more detail in a later section. Here are eight steps to help you create an effective budget for your own business. Business owners should create cash roll-forwards last because they need a cash projection for each month. You’ll see that the beginning of January cash balance ($10,000) is the year-end cash balance in the prior year’s balance sheet.

There’s rent to take care of, employee salaries, office supplies, and other monthly or yearly payments. These are considered fixed costs because they don’t change much from month to month. Both fixed expenses and variable expenses are recurring in nature, making it easy to account for them (even if variable expenses must be projected). One-time expenses, also called “one-time spends,” don’t recur and happen more rarely.

  • Dealing with the finances is often a responsibility that is primarily taken on by one person in the relationship.
  • This will help you gauge how successful your products are during off seasons, what revenue to expect, and how much to save during your peak periods.
  • While your credit score won’t be directly impacted based on the fact that you got divorced alone, there are indirect ways it could be affected.
  • When budgeting, just assume that your business will have at least one major unexpected expense during the year.
  • Even if you don’t need bank financing, creating a budget is still a valuable exercise for any new and continuing business.
  • To find out how much money your business is bringing in, refer to your profit and loss statements.
  • But you could also use the money on non-essential things like dining out or traveling.