Building business budget: How to Create a Business Budget: 6 Simple Steps
This is your opportunity to set spending and earning goals for each month, quarter and year. If they don’t line up with your projections, make sure to establish a strategy for making up the difference. Once you’ve identified your business’s fixed costs, you’ll subtract those from your income and move to the next step. Template Lab’s small business budget template section gives you a few different templates to work with, in word document and spreadsheet format.
Then, next to each category, list the total amount you’ve budgeted. Finally, create another column to the right—when the time period ends, use it to record the actual amounts spent in each category. This gives you a snapshot of your budget that’s easy to find without diving into layers of crowded spreadsheets.
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Or, if you run a brick-and-mortar retail business, you may only have one source of income from your store sales. If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. Like Xero, Zoho Books lets you enter budget numbers for a single period, then specify a percentage increase or decrease in budgeted numbers.
- A budget isn’t just a line of numbers with categories listed at the top.
- Whether it comes in a lump sum or in small sales each day, you need to accurately tally income.
- Want to protect the financial health of your small business?
- Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent.
- This business startup budget guide from The Balance is a great start.
- After analyzing your variable costs for several months to a year, you may be able to identify upcoming extra spend.
When budgeting, just assume that your business will have at least one major unexpected expense during the year. You can bank that money for when the unexpected does occur. Planning for growth is important when calculating budget revenue, but you’ll have to account for added expenses as well. The ideal situation is to prepare your budget details in your accounting software application.
Step 1: Review your revenue
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 master budget is an aggregate of a company’s individual budgets designed to present a complete picture of its financial activity and health. While many firms draft a budget yearly, small business owners should do so more often. 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.
- Once you’ve identified them, sum them up to get a precise figure of your fixed costs on a month-to-month basis.
- A budget is a detailed plan that outlines where you’ll spend your money monthly or annually.
- You identify what you own of value (your assets), estimate your upcoming expenses, and account for and grow your revenue base.
- Then, you can use those historic numbers and trends to make revenue projections for future months.
- Take your gross revenue from Step 3 (the total amount of money you expect to make this month) and subtract the cost of goods sold to find your gross profit.
A budget calculator can help you see exactly where you stand when it comes to your business budget planning. It might sound obvious, but getting all the numbers in your budget in one easy-to-read summary is really helpful. Whether you want to revamp your budgeting method, or you’ve never created a business budget before, this guide will walk you through the process. If times are tight and money must be found somewhere in order to pay a crucial bill, advertise, or otherwise capitalize on an opportunity, consider cost-cutting. Specifically, take a look at items that can be controlled to a large degree.
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It’s important to do this for multiple months and preferably for at least the previous 12 months, provided you have that much data available. The longer you’ve been in business, the more data you’ll have to inform your forward-looking budget. If you run a startup, however, you’ll want to do extensive research into typical costs for businesses in your industry, so that you have working estimates for revenue and expenses. If you don’t employ an attorney, it may be time to consider hiring your own in-house attorney or the consulting services of an accounting firm. Other options include investment consultants, controllers, or even a bookkeeper.
You have positive cash flow if there is more money coming into your business over a set period of time than going out. This is most easily calculated by subtracting the amount of money available at the beginning of a set period of time and at the end. They’re risk takers, visionaries and motivated mavericks.
Getting some financial help can make your budgeting easier and help you accurately pay taxes. Utilities based on usage, such as gas or electricity, will change each month. Inventory and materials may fluctuate based on sales or market needs. You will want to look at your variable costs for 3-6 months if possible to get a feel for averages and patterns. While you might spend a lot on office supplies one month, you may not need any for the rest of the quarter, and can begin to plan for that expense. Putting in the work to create your budget may seem like a hassle.
Your variable costs
That way, when priorities change or new opportunities arise, you have the insights you need at your fingertips. Budgeting software can make expense tracking and profit-and-loss statements a breeze. There are many options on the market, catering to certain industries or specifically for small businesses. Finding and using a budgeting software program that is the right fit for your business can save you time and help you more easily identify trends.
If you need to stock up on inventory to meet demand, factor this into your cost of goods sold. Use the previous year’s sales or industry benchmarks to take a best guess at the amount of inventory you need. Since cash flow is the oxygen of every business, make sure you monitor this weekly, or at least monthly. You could be raking it in and still not have enough money on hand to pay your suppliers. Cash flow is all money traveling into and out of a business.
Unlike fixed costs, variable expenses change alongside your business’s output or production. Look at how they’ve fluctuated over time in your business, and use that information to estimate future variable costs. The second step for creating a business budget involves adding up all of your historic fixed costs and using them to reliably predict future ones. Fixed costs are those that stay the same no matter how much income your business is generating.
These vary from order to order, so make an average estimate. While every good budget has the same framework, you’ll need to think about the unique budgeting quirks of your industry and business type. If circumstances change (as they do), your budget can flex to give you a clear picture of where you stand at all times. You give every dollar a “job,” based on what you think is the best use of your business funds, and then go back and compare your plan with reality to see how you did. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more.
Cash flow is the relationship between incoming and outgoing money over time. Are the points in the month where you don’t have the funds you need? Analyze your use of credit or cash reserves to get through your monthly budget more smoothly.