Create a Small Business Budget in 5 Simple Steps

Plus, there are thousands of business budget templates for you to choose from. Business budgets are a source of truth for your income and expenses. That includes all the money you spend — from A/B testing your marketing campaigns to your monthly office rent.

Sales commissions, materials costs, and labor costs are other examples of variable expenses. 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. They might occur daily, weekly, monthly or yearly, so make sure to get as much data as you can.

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Operating budgets are generally created on a weekly, monthly, or yearly basis. A manager might compare these reports month after month to see if a company is overspending on supplies. Variable costs might include raw materials, inventory, production costs, packaging, or shipping.

You may also see the resulting number referred to as net income. If you end up with a positive number, you can expect to make a profit. Small businesses aren’t necessarily profitable every month, let alone every year.

Your cash flow

A business budget is an overview of your business’ finances. It outlines key information on both the current state of your finances (including income and expenses) and your long-term financial goals. Because your budget will play a key role in making sound financial decisions for your business, it should be one of the first tasks you tackle. Small businesses don’t always have a budget but experience tells us that they should.

• Cash flow is the relationship between incoming and outgoing money over time.
• Either you’re looking for a marketing budget or budget planner to apply for a loan, you can get a template for it.
• In that case, you can use Microsoft Excel or similar spreadsheet software to prepare your budget.
• With this in mind, anyone who aspires to start their own business or move into an organizational leadership position can benefit from learning how to prepare a budget.
• Jon Morgan is the founder of two successful e-commerce and SaaS businesses.
• Your budget should be such that you can increase your revenue and profit enough as your business expands to handle your growing expenses.

This can include expenses like rent, certain utilities (like internet or phone plans), website hosting, and payroll costs. Like a personal budget, your business budget maps How to create a business budget out your spending and income during a period (e.g., year, quarter, etc.). You can work toward company goals like increasing profits and decreasing debt through a budget.

Step 2: Take a look at your fixed expenses

If you can track every sale and each income source, you’ll have an easier time knowing what you have to spend and save. Even businesses that are doing well enough to get by without a budget will run into problems. They’ll be less efficient than they could be if they watched their financial planning, and their bookkeeping will inevitably suffer. It shows all your debits, credits, assets and liabilities on a single document. In other words, it represents the entire balance of your business accounts.

Small business budgeting is crucial to the success of your business. Without a business budget, you cannot track where, when, and what to spend. Cash flow shortage and low financing are some of the biggest reasons businesses fail. Therefore, you cannot afford to ignore your business budget to grow and sustain in the industry.

What makes a good budget?

If you’re just getting started with budgeting for your business, these templates are a great medium for learning the process. We invite you to create copies, download, edit, and print these business budget templates. Whether you’re optimizing your personal spending or building a business budget, your first step should be aggregating all of your forms of income. Your net income determines how much you can afford to spend.

The budget won’t be accurate if you forget to include specific bills, taxes or payments. You can make this step much more manageable with reliable invoice software and a way to accept credit card payments. Part of making a sound budget is tracking your income, especially if you use a virtual terminal or a card reader at your POS.

One of the first steps in any budgeting exercise is to look at your existing business and find all of your revenue sources. Add all those income sources together to determine how much money comes into your business monthly. 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. After reviewing your P&L statement, you’ll have a better idea of where you’re spending your money—and if you’re spending responsibly. With this data in mind, you’re ready to draft your business budget for the next year, quarter, or month.

You enter your revenue in one specific tab and expenses in another. Then, like magic, the spreadsheet uses the data in the income and expense tabs to summarize the information. This template can even determine net savings and the ending balance. Without one, you could easily be drowning in expenses or unexpected costs. With regular budget tracking, you always know how your business is doing. Check in regularly to determine how you are doing in terms of revenue and where you have losses.

Creating a business budget is an excellent first step for any new business owner. By taking a closer look at your assets, expenses, and financial goals, you can craft a better plan for the future of your booming business. Begin your cash flow statement by combining total costs with total collections of money from all sales for each month. Remember that sales and collections might be different, unless you have a cash or credit business.

Learn how to create a business budget using the following eight steps. In fact, 20% of survey respondents said they don’t budget because it’s too time-consuming. But if you want to avoid overspending, you need to set aside time to budget. Your business has to deal with utilities, taxes, insurance, payroll, purchasing and more.

• After feedback, address any reservations from a team member or reconcile the draft for any changes suggested by team members.
• Capterra’s small business budget template is easy to use and employs all of the components we defined above, like fixed costs, variable costs, revenue, and profit.
• Perhaps you’re working out of your home, but plan on renting or buying a building for your business in the next year or two.
• Knowing this, you should determine how to use additional funds best.

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. You’ll be able to see the obstacles and find your way around them.

Stefany Pennisi