A Guide for Small Business Owners on How to Create a Business Budget

Yoo-hoo! Do you have big plans for making a business work? Don’t let it be a wishful thinking. A well-made budget can help you get where you want to go.

Putting together a budget for a business can be a difficult job. But if you follow my advice, you’ll be making budgets like a pro in no time!

What is a Business Budget?

A business budget is a financial plan that explains how much money your small business has and where it will be spent.

It also shows how much money you expect to make and spend over a certain time period.

A well-made budget can help you control costs, improve income, and reach both short-term and long-term goals.

Think of it like a map for your business. It shows you where you’re going and how to get there.

Why is a Business Budget Important?

Putting together a budget for your small business is important for more than one reason.

Let’s look at a few of the advantages.

A business budget helps you make a financial plan

Creating a budget is the first step to making a financial plan for your small business.

This will help you understand your present and future finances, make smart choices about where to put your resources, and set business goals that are realistic.

Imagine you were going on a car trip and didn’t have a plan. It would be easier to get lost or take the wrong turn.

The same is true for your business: without a budget, you won’t know where you’re going or how to measure your progress.

A business budget helps you make financial predictions

Creating a budget for your company will assist you in making accurate financial projections.

You can correctly guess and plan for future costs, as well as predict sales trends so you can change your budget as needed.

If you make a budget and keep track of your finances, you will have a good understanding of how much money you will need for any significant purchases or investments in the future.

You can find out, on average, what kinds of business costs you can expect and change your budget properly.

It can also help you figure out how to plan for yearly changes in your sales and how to handle them if they happen.

A business budget helps you set growth and sales goals

When you make a budget for your small business, it will help you set realistic goals for growth.

You will be able to see where more money is needed and make sure you put enough money in the right places. 

By knowing how much money you have, you can plan for your business’s long-term growth and focus on goals that will help your success when starting a business.

As a business owner, it is very important to plan and set goals that can be reached.

A Business Budget Helps You Monitor Performance

Your business budget will also help you track and judge how well your business is doing.

You can make changes to the budget by figuring out where you can save the most money.

This will help you figure out how much money is coming into your business and how much is leaving it.

Once everything is set up, you can start keeping track of your spending and funds.

By doing this, you can quickly find any problems with your spending that might be caused by differences.

A Business Budget Helps You Manage Cashflow

You’ll be able to better manage your cash flow if you establish and stick to a company budget.

Your financial activity will be transparent to you, and you may use it to prepare for upcoming costs.

You can prevent any unanticipated charges from derailing your plan by keeping track of your spending. Cash flow, always remember, is king!

It will be easier to manage your finances and keep your company operating smoothly if you have a clear understanding of your cash flow.

How Does a Small Business Budget Work?

Let’s talk about how a business budget functions now that you are aware of why it is crucial to develop one.

Establishing your revenue and costs is the first stage in developing a small company budget.

You may create objectives for your budget and allocate resources in accordance with this information, which will give you a sense of how much money you have coming in and going out each month.

By tracking spending and comparing them to the allocated amount, you will also need to keep track of your progress. Consequently, you aren’t out there blowing cash you don’t have.

Adjustments may be made to keep on course if you discover inconsistencies.

To make sure you are still on course and accomplishing your objectives, it is crucial to periodically review your budget. For all small companies, setting up a budget is crucial since it makes it easier to manage your funds.

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Types of Business Budgets

Let’s take a look at the different types of business budgets and how they can help your small business.

Master Budget

A master budget is a single record that shows all of your company’s planned income and costs.

It is made once a year and includes expected sales, production costs, labour costs, capital spending, and other financial responsibilities.

The master budget is an all-inclusive plan that includes everything about how your business works, from running day-to-day tasks to making plans for the future.

Operating Budget

An running budget covers the day-to-day costs of a business, such as pay, supplies, and other operational costs.

It’s generally made once a month or three times a year to help you run daily activities more smoothly.

Cash Flow Budget

A cash flow budget is meant to help businesses handle their money and plan for any changes in cash flow.

It takes into account the expected costs of running a business as well as any expected income.

The goal of this kind of budget is to make sure that there are enough funds to keep things running smoothly.

Financial Budget

A financial budget is made to show a business how much money it has coming in and going out.

It takes into account the expected income, costs, and debt payments for a certain time.

It also lets businesses plan ahead for investments and other big purchases.

Static Budget

A steady budget is one that stays the same no matter what.

It’s meant to give businesses a standard for what their costs and income should be, no matter how the market or business situation changes.

A company might use a steady budget when they know their costs won’t change for a certain amount of time.

How to Create a Business Budget

I have a list of steps you can take to make a good business budget.

Step 1: Calculate Average Monthly Revenue

The first step is to figure out how much you make on average each month. This means you need to add up all the money you made in the past year and divide it by 12.

This will help you get a good idea of how much money your business can make each month.

If you’re just starting out, it’s best to estimate based on what you think will happen.

Step 2: Subtract Fixed Cost

Once you know your average monthly income, you can subtract your set costs from that number.

What are fixed cost?

Fixed costs are bills that you must pay every month, no matter what.

These amounts stay the same each month.

Step 3: Subtract Variable Costs

The next step is to take any costs that change out of your total.

What are costs that change?

Costs that change from month to month based on sales, production costs, and other factors are called “variable expenses.”

Step 4: Determine Your Gross Profit

After you take out the set and fluctuating costs from your total, you’ll be left with your gross earnings.

This number is what you have left over after paying all of your bills, and it can help you decide how to prepare for future purchases or investments.

Think of total profit as the money you have to put back into your business.

How to Figure Gross Profit

Use this method to figure out your gross profit: Total Revenue – (Fixed Costs + Variable Costs) = Gross Profit. 

Even though this method isn’t hard, it’s important to keep correct records of your costs and income if you want to know what your gross profit is.

Step 5: Account for Net Profit & Taxes

You’ll also need to figure out how much tax you have to pay and take that amount away from your gross profit.

This will give you the net profit number, which is the amount of money you’ll have to put back into your business.

Step 6: Monitor Your Budget

Now that you have a budget, stick to it carefully to get a clear picture of how much money you are making.

By making changes to your budget on a regular basis to account for changing costs and income, you can make sure that your business stays profitable.

Also, keep track of any investments you make or big purchases you make so you can change your spending correctly.

Knowing how much money you get and how much you spend each month will help you control your money better.

Business Budgeting Tips

Here are a few tips that have helped me with budgeting for my business.

Tip 1: Set Monthly Earnings Goals

I like to set a monthly income goal as one of the first steps in making a budget.

So, you can make sure your business has enough money to reach its goals.

Not making as much money as you wanted? Put more of your cash towards sales or advertising! 

Tip 2: Set Monthly Spending Goals

You should also set regular spending goals based on how much money you have coming in.

This means figuring out how much money you can spend on goods, ads, and other costs without going over budget.

Tip 3: Analyze Areas of Weakness

When keeping track of your spending, it’s important to look for weak spots.

Are there any costs that you think are too high? Are you spending too much on advertising?

These questions can help you figure out what’s wrong with your business and make the changes you need to fix it.

Tip 4: Make Predictions Monthly on the First

I suggest making guesses every month on the first of the month.

This helps you plan for any changes in costs or income and make better planning decisions for the next month.

A pro tip is that you should make a worksheet with two categories every month. Column A should be your planned budget, and column B should be your real budget. From there, go over your budget at the end of the month! 

Tip 5: Factor in Seasonality/Industry Trends 

It’s a good idea to think about the seasons and business trends when making your budget.

For instance, if your business has regular highs and lows, you should plan for them in your budget.

The same goes for any trends in your business. If less people want your goods or service, change how much you spend.

Tip 6: Keep Your Personal & Business Accounts Separate 

Your personal finance should not be mixed in with your business finance. Keep the accounts separate!

Having two different accounts will help you keep track of your expenses on both sides and avoid any confusion.

Tip 7: Choose a Solid Budgeting Tool 

Lastly, choose a good planning tool that will help you stay on top of things and stay organised.

There are a lot of different choices, like files and cloud-based tools. Pick the bookkeeping programme that works best for you and your business.

We usually use Quickbooks to make budgets because it’s cheap and easy to use, but most apps will work as well.

Tip 8: Be Conservative With Revenue

If Be careful when estimating how much money you’ll make each month.

Don’t think you’ll make too much money this month. It’s easy to get carried away and spend more than you have coming in.

If you are cautious, you can always stay within your budget and reach your goals.

Tip 9: Plan for Business Growth

Lastly, plan for growth all the time.

This doesn’t mean you have to spend a lot of money or take chances; it just means you should be ready to grow when the time is right.

Keep an eye on the trends in your business and make changes to your budget as needed.

Business Budget Conclusion

Planning a business budget is the key to running a business well.

A well-planned budget will help you make good financial choices, stay organised, and make the most money possible.

As the owner of a small business, you need to know how to make a budget and what its parts are.

There are a lot of planning tools that can help you keep track of your money and handle it better.

If you know the basics of business planning and have the right tools, you can make sure your business runs easily and makes money for years.