how to write a business plan for budget

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How to Create a Business Budget for Your Small Business

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A business budget estimates future revenue and expenses in detail, so that you can see whether you’re on track to meet financial expectations for the month, quarter or year. Think of your budget as a point of comparison — you run your actual numbers against it to determine if you’re over or under budget.

From there, you can make informed business decisions and pivot accordingly. For example, maybe you find that your expenses are over budget for the quarter, so you may hold off on a large equipment purchase.

Here’s a step-by-step guide for creating a business budget, along with why budgets are crucial to running a successful business.

» MORE: What is accounting? Definition and basics, explained

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How does a business budget work?

Budgeting uses past months’ numbers to help you make financially conservative projections for the future and wiser business decisions for the present. If you’ve had a few bad months and predict another slow one, you can prepare to minimize expenses where possible. If business has been booming and you’re bringing in new customers, maybe you invest in buying more inventory to satisfy increased demand.

Creating a business budget from scratch can feel tedious, but you might already have access to tools that can help simplify the process. Your small-business accounting software is a good place to start, since it houses your business’s financial data and may offer basic budgeting reports.

To create a budget in QuickBooks Online , for example, you break down your estimated income and expenses across each area of your business. Then, the software calculates figures like gross profit, net operating income and net income for you.

You can then compare actual versus projected figures side by side by running a Budget vs. Actuals report. Businesses that need more in-depth features, like cash flow forecasting or the ability to use different projection methods, might subscribe to business budgeting software in addition to accounting software.

If your small business doesn’t have access to these features or has simple financials, you can download free small-business budget templates to manually create and track your budget. Regardless of which option you choose, your business will likely benefit from hiring an accountant to help manage your budget, course-correct when the business gets off track, and make sure taxes are being paid correctly.

Why is a business budget important?

A business budget encourages you to look beyond next week and next month to next year, or even the next five years.

Creating a budget can help your business do the following:

Maximize efficiency. 

Establish a financial plan that helps your business reach its goals. 

Point out leftover funds that you can reinvest.

Predict slow months and keep you out of debt.

Estimate what it will take to become profitable.

Provide a window into the future so you can prepare accordingly.

Creating a business budget will make operating your business easier and more efficient. A business budget can also help ensure you’re spending money in the right places and at the right time to stay out of debt.

How to create a business budget in 6 steps

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.

From there, here’s how to put together your business budget:

1. Examine your revenue

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.

Notice how your business’s monthly income changes over time and try to look for seasonal patterns. Your business might experience a slump after the holidays, for example, or during the summer months. Understanding these seasonal changes will help you prepare for the leaner months and give you time to build a financial cushion.

Then, you can use those historic numbers and trends to make revenue projections for future months. Make sure to calculate for revenue, not profit. Your revenue is the money generated by sales before expenses are deducted. Profit is what remains after expenses are deducted.

2. Subtract fixed 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. They might occur daily, weekly, monthly or yearly, so make sure to get as much data as you can.

Examples of fixed costs within your business might include:

Debt repayment.

Employee salaries.

Depreciation of assets.

Property taxes.

Insurance .

Once you’ve identified your business’s fixed costs, you’ll subtract those from your income and move to the next step.

3. Subtract variable expenses

As you compile your fixed costs, you might notice other expenses that aren’t as consistent. 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. These expenses get subtracted from your income, too.

Some examples of variable expenses are:

Hourly employee wages.

Owner’s salary (if it fluctuates with profit). 

Raw materials.

Utility costs that change depending on business activity.

During lean months, you’ll probably want to lower your business’s variable expenses. During profitable months when there’s extra income, however, you may increase your spending on variable expenses for the long-term benefit of your business.

4. Set aside a contingency fund for unexpected costs

When you’re creating a business budget, make sure you put aside extra cash and plan for contingencies.

Although you might be tempted to spend surplus income on variable expenses, it’s smart to establish an emergency fund instead, if possible. That way, you’ll be ready when equipment breaks down and needs replacing, or if you have to quickly replace inventory that's damaged unexpectedly.

5. Determine your profit

Add up all of your projected revenue and expenses for each month. Then, subtract expenses from revenue. 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. If not, that’s a loss — and that can be OK, too. Small businesses aren’t necessarily profitable every month, let alone every year. This is especially true when your business is just starting out. Compare your projected profits to past profits to confirm whether they’re realistic.

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6. Finalize your business budget

Are the resulting profits enough to work with, or is your business overspending? This is your opportunity to set spending and earning goals for each month, quarter and year. These goals should be realistic and achievable. If they don’t line up with your projections, make sure to establish a strategy for making up the difference.

As time goes on, regularly compare your actual numbers to your budget to determine whether your business is meeting those goals, and course correct if necessary.

» MORE: Ways your small business can spend smarter

A business budget projects future revenue and expenses so you can create a smart, realistic spending plan. As the year progresses, comparing your actual numbers against your budget can help you hold your business accountable and make sure it reaches its financial goals.

A business budget includes projected revenue, fixed costs, variable costs and the resulting profits. You can also factor in contingency funds for unforeseen circumstances like equipment failure.

On a similar note...

How To Write A Business Plan (2024 Guide)

Updated: Apr 17, 2024, 11:59am

Table of Contents

Brainstorm an executive summary, create a company description, brainstorm your business goals, describe your services or products, conduct market research, create financial plans, bottom line, frequently asked questions.

Every business starts with a vision, which is distilled and communicated through a business plan. In addition to your high-level hopes and dreams, a strong business plan outlines short-term and long-term goals, budget and whatever else you might need to get started. In this guide, we’ll walk you through how to write a business plan that you can stick to and help guide your operations as you get started.

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Drafting the Summary

An executive summary is an extremely important first step in your business. You have to be able to put the basic facts of your business in an elevator pitch-style sentence to grab investors’ attention and keep their interest. This should communicate your business’s name, what the products or services you’re selling are and what marketplace you’re entering.

Ask for Help

When drafting the executive summary, you should have a few different options. Enlist a few thought partners to review your executive summary possibilities to determine which one is best.

After you have the executive summary in place, you can work on the company description, which contains more specific information. In the description, you’ll need to include your business’s registered name , your business address and any key employees involved in the business. 

The business description should also include the structure of your business, such as sole proprietorship , limited liability company (LLC) , partnership or corporation. This is the time to specify how much of an ownership stake everyone has in the company. Finally, include a section that outlines the history of the company and how it has evolved over time.

Wherever you are on the business journey, you return to your goals and assess where you are in meeting your in-progress targets and setting new goals to work toward.

Numbers-based Goals

Goals can cover a variety of sections of your business. Financial and profit goals are a given for when you’re establishing your business, but there are other goals to take into account as well with regard to brand awareness and growth. For example, you might want to hit a certain number of followers across social channels or raise your engagement rates.

Another goal could be to attract new investors or find grants if you’re a nonprofit business. If you’re looking to grow, you’ll want to set revenue targets to make that happen as well.

Intangible Goals

Goals unrelated to traceable numbers are important as well. These can include seeing your business’s advertisement reach the general public or receiving a terrific client review. These goals are important for the direction you take your business and the direction you want it to go in the future.

The business plan should have a section that explains the services or products that you’re offering. This is the part where you can also describe how they fit in the current market or are providing something necessary or entirely new. If you have any patents or trademarks, this is where you can include those too.

If you have any visual aids, they should be included here as well. This would also be a good place to include pricing strategy and explain your materials.

This is the part of the business plan where you can explain your expertise and different approach in greater depth. Show how what you’re offering is vital to the market and fills an important gap.

You can also situate your business in your industry and compare it to other ones and how you have a competitive advantage in the marketplace.

Other than financial goals, you want to have a budget and set your planned weekly, monthly and annual spending. There are several different costs to consider, such as operational costs.

Business Operations Costs

Rent for your business is the first big cost to factor into your budget. If your business is remote, the cost that replaces rent will be the software that maintains your virtual operations.

Marketing and sales costs should be next on your list. Devoting money to making sure people know about your business is as important as making sure it functions.

Other Costs

Although you can’t anticipate disasters, there are likely to be unanticipated costs that come up at some point in your business’s existence. It’s important to factor these possible costs into your financial plans so you’re not caught totally unaware.

Business plans are important for businesses of all sizes so that you can define where your business is and where you want it to go. Growing your business requires a vision, and giving yourself a roadmap in the form of a business plan will set you up for success.

How do I write a simple business plan?

When you’re working on a business plan, make sure you have as much information as possible so that you can simplify it to the most relevant information. A simple business plan still needs all of the parts included in this article, but you can be very clear and direct.

What are some common mistakes in a business plan?

The most common mistakes in a business plan are common writing issues like grammar errors or misspellings. It’s important to be clear in your sentence structure and proofread your business plan before sending it to any investors or partners.

What basic items should be included in a business plan?

When writing out a business plan, you want to make sure that you cover everything related to your concept for the business,  an analysis of the industry―including potential customers and an overview of the market for your goods or services―how you plan to execute your vision for the business, how you plan to grow the business if it becomes successful and all financial data around the business, including current cash on hand, potential investors and budget plans for the next few years.

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Julia is a writer in New York and started covering tech and business during the pandemic. She also covers books and the publishing industry.

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  February 27, 2024

How to create a business budget: 8 simple steps.

No matter the size of your business, a business budget is vital to planning and guiding your business’s growth. By understanding the fixed expenses of a company and accounting for the ebb and flow of work, a proper business budget can help your business maintain itself through the year and create protection around unplanned expenses through well allocated funds. In this guide, we'll walk you through the process of creating a business budget, outlining essential steps to help you manage your finances effectively.

What Is a Business Budget?

A business budget is a financial plan outlining projected revenues and expenses for a business during a specific period of time (most typically a year, though there are often monthly or quarterly reexaminations). Although there are variables throughout the year, a complete and accurate budget will serve as a blueprint for businesses in managing income and expenditures, guiding decision-making processes, and ensuring financial stability. 

What Should a Business Budget Include?

A comprehensive business budget’s purpose is to provide a business a holistic view of their financial health. When looking through bank statements, take note of those expenses that reoccur throughout the year and note those—as well as those unexpected expenses your company should instead anticipate. Key components to include are:

• Revenue Forecast: Anticipated income from sales, services, or other sources after deducting costs, taxes, and other fees.
• Fixed Operating Expenses: Costs associated with running the business, such as rent, utilities, salaries, and supplies.
• Capital Expenditures: Investments in assets like equipment, machinery, or property.
• Debt Service: Payments towards loans, credit lines, or other forms of debt.
• Taxes: Estimated tax liabilities, including income tax, sales tax, and payroll taxes.
• Contingency Funds: Reserves set aside for unexpected expenses or emergencies.
• Profit Targets: Desired levels of profitability, indicating the financial performance you aim to achieve.

Why Is Budgeting Important to a Business?

Budgeting plays a crucial role in the financial management of a business for several reasons:

• Resource Allocation: Helps allocate resources efficiently to prioritize essential activities and investments.
• Financial Control: Provides a framework for monitoring and controlling expenses to prevent overspending.
• Performance Evaluation: Facilitates performance measurement against predetermined targets, enabling timely corrective actions.
• Decision Making: Guides decision-making processes by providing insights into the financial implications of various options.
• Risk Management: Identifies potential risks and allows for proactive mitigation strategies to safeguard financial stability.

How Does Budgeting Help a Business?

Effective budgeting contributes to the success and sustainability of a business in numerous ways:

• Improved Cash Flow Management: Helps maintain adequate cash reserves to meet financial obligations and fund growth initiatives.
• Enhanced Profitability: Enables businesses to identify opportunities for revenue growth and cost optimization, leading to higher profitability.
• Better Resource Utilization: Ensures optimal utilization of resources by aligning expenditures with strategic priorities and operational needs.
• Increased Financial Transparency: Provides stakeholders with a clear understanding of the company's financial health and performance.
• Long-term Planning: Facilitates long-term planning by forecasting future financial requirements and setting achievable goals.

How to Create a Business Budget

Now that we’ve gone over the importance of a business budget, it’s time to understand the steps you need to take in order to create a comprehensive plan.

Gather Financial Information

Start by compiling relevant financial data, including past income statements, balance sheets, and cash flow statements. Analyze historical trends to identify patterns and make informed projections for the upcoming period.

Determine Your Financial Goals

Define clear, measurable financial goals aligned with your business objectives. Whether it's increasing revenue, reducing costs, or improving profitability, setting specific targets will provide a roadmap for your budgeting process.

Identify Revenue Sources

Identify all potential sources of revenue, including sales, services, investments, and other income streams. Estimate the expected revenue for each source based on market trends, historical data, and sales forecasts.

Estimate Expenses

Next, list all anticipated expenses, categorizing them into fixed and variable costs. Fixed expenses, such as rent and salaries, remain constant regardless of business activity, while variable expenses, like supplies and utilities, fluctuate based on demand.

Factor in Contingencies & Emergency Funds

Allocate a portion of your budget for contingencies and emergency funds to cover unforeseen expenses or revenue shortfalls. Building a financial cushion will provide stability and resilience during challenging times.

Balance Your Budget

Balance your budget by ensuring that projected revenues exceed estimated expenses. If there's a deficit, identify areas where you can reduce costs or increase revenue to achieve equilibrium.

Monitor & Track Your Budget

Regularly monitor and track your budget against actual financial performance to identify variances and deviations. Use accounting software or spreadsheets to update your budget and make adjustments as needed to stay on course.

Review & Adjust Budget Regularly

Review your budget periodically, ideally on a quarterly or annual basis, to assess its effectiveness and relevance. Adjust your budget as necessary based on changing market conditions, business priorities, and performance trends.

Contact Mowery & Schoenfeld for Help with Business Budgeting

Creating and managing a business budget requires expertise and strategic planning. At Mowery & Schoenfeld, we specialize in helping businesses develop robust financial strategies to achieve their financial goals. Contact us today to learn how our team of experienced professionals can assist you with business budgeting and financial management. 

A How-To Guide for Creating a Business Budget

Amanda Smith

Reviewed by

September 23, 2022

This article is Tax Professional approved

Most business owners know how important a business budget is when it comes to managing expenses and planning for the future—but in a challenging economic environment like the one we’ve been experiencing, your business budget takes on even greater significance.

With inflation running rampant and the possibility of a recession looming, business owners need to be able to forecast their cash flow, manage their expenses, and plan for the future. Creating a detailed business budget is the first step.

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.

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What is a business budget?

A budget is a detailed plan that outlines where you’ll spend your money monthly or annually.

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.

A budget will help you:

• Forecast what money you expect to earn
• Plan where to spend that revenue
• See the difference between your plan and reality

What makes a good budget?

The best budgets are simple and flexible. If circumstances change (as they do), your budget can flex to give you a clear picture of where you stand at all times.

Every good budget should include seven components:

1. Your estimated revenue

This is the amount you expect to make from the sale of goods or services. It’s all of the cash you bring in the door, regardless of what you spent to get there. This is the first line on your budget. It can be based on last year’s numbers or (if you’re a startup ), based on industry averages.

2. Your fixed costs

These are all your regular, consistent costs that don’t change according to how much you make—things like rent, insurance, utilities, bank fees, accounting and legal services, and equipment leasing.

Further reading: Fixed Costs (Everything You Need to Know)

3. Your variable costs

These change according to production or sales volume and are closely related to “ costs of goods sold ,” i.e., anything related to the production or purchase of the product your business sells. Variable costs might include raw materials, inventory, production costs, packaging, or shipping. Other variable costs can include sales commission, credit card fees, and travel. A clear budget plan outlines what you expect to spend on all these costs.

The cost of salaries can fall under both fixed and variable costs. For example, your core in-house team is usually associated with fixed costs, while production or manufacturing teams—anything related to the production of goods—are treated as variable costs. Make sure you file your different salary costs in the correct area of your budget.

Further reading: Variable Costs (A Simple Guide)

4. Your one-off costs

One-off costs fall outside the usual work your business does. These are startup costs like moving offices, equipment, furniture, and software, as well as other costs related to launch and research.

5. Your cash flow

Cash flow is all money traveling into and out of a business. 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.

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.

6. Your profit

Profit is what you take home after deducting your expenses from your revenue. Growing profits mean a growing business. Here you’ll plan out how much profit you plan to make based on your projected revenue, expenses, and cost of goods sold. If the difference between revenue and expenses (aka “ profit margins ”) aren’t where you’d like them to be, you need to rethink your cost of goods sold and consider raising prices .

Or, if you think you can’t squeeze any more profit margin out of your business, consider boosting the Advertising and Promotions line in your budget to increase total sales.

7. A budget calculator

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.

In your spreadsheet, create a summary page with a row for each of the budget categories above. This is the framework of your basic budget. 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.

See the sample below.

Pro tip: link the totals on the summary page to the original sums in your other budget tabs . That way when you update any figures, your budget summary gets updated at the same time. The result: your very own budget calculator.

You can also check out this simple Startup Cost Calculator from CardConnect. It lays out some of the most common expenses that you might not have considered. From there, you can customize a rough budget for your own industry.

Small business budgets for different types of company

While every good budget has the same framework, you’ll need to think about the unique budgeting quirks of your industry and business type.

Seasonal businesses

If your business has a busy season and a slow season, budgeting is doubly important.

Because your business isn’t consistent each month, a budget gives you a good view of past and present data to predict future cash flow . Forecasting in this way helps you spot annual trends, see how much money you need to get you through the slow months, and look for opportunities to cut costs to offset the low season. You can use your slow season to plan for the next year, negotiate with vendors, and build customer loyalty through engagement.

Don’t assume the same thing will happen every year, though. Just like any budget, forecasting is a process that evolves. So start with what you know, and if you don’t know something—like what kind of unexpected costs might pop up next quarter— just give it your best guess . Better to set aside money for an emergency that doesn’t happen than to be blindsided.

Ecommerce businesses

The main budgeting factor for ecommerce is shipping. Shipping costs (and potential import duties) can have a huge impact.

Do you have space in your budget to cover shipping to customers? If not, do you have an alternative strategy that’s in line with your budget—like flat rate shipping or real-time shipping quotes for customers? Packaging can affect shipping rates, so factor that into your cost of goods sold too. While you’re at it, consider any international warehousing costs and duties.

You’ll also want to create the best online shopping experience for your customers, so make sure you include a good web hosting service, web design, product photography, advertising, blogging, and social media in your budget.

Inventory businesses

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. A little upfront research will help ensure you’re getting the best prices from your vendors and shipping the right amount to satisfy need, mitigate shipping costs, and fit within your budget.

The volume of inventory might affect your pricing. For example, if you order more stock, your cost per unit will be lower, but your overall spend will be higher. Make sure this is factored into your budget and pricing, and that the volume ordered isn’t greater than actual product demand.

You may also need to include the cost of storage solutions or disposal of leftover stock.

Custom order businesses

When creating custom ordered goods, factor in labor time and cost of operations and materials. These vary from order to order, so make an average estimate.

Budgeting is tricky for startups—you rarely have an existing model to use. Do your due diligence by researching industry benchmarks for salaries, rent, and marketing costs. Ask your network what you can expect to pay for professional fees, benefits, and equipment. Set aside a portion of your budget for advisors—accountants, lawyers, that kind of thing. A few thousand dollars upfront could save you thousands more in legal fees and inefficiencies later on.

This is just scratching the surface, and there’s plenty more to consider when creating a budget for a startup. This business startup budget guide from The Balance is a great start.

Service businesses

If you don’t have a physical product, focus on projected sales, revenue, salaries, and consultant costs. Figures in these industries—whether accounting, legal services, creative, or insurance—can vary greatly, which means budgets need flexibility. These figures are reliant on the number of people required to provide the service, the cost of their time, and fluctuating customer demand.

Small business budgeting templates

A business budget template can be as simple as a table or as complex as a multi-page spreadsheet. Just make sure you’re creating something that you’ll actually use.

Create your budget yearly—a 12-month budget is standard fare—with quarterly or monthly updates and check-ins to ensure you’re on track.

Here are some of our favorite templates for you to plug into and get rolling.

• The Balance has a clear table template that lists every budget item, the budgeted amount, the actual amount, and the difference between the two. Use this one if you’re looking to keep it simple.
• Capterra has both monthly and annual breakdowns in their Excel download. It’s straightforward, thorough, and fairly foolproof.
• Google Sheets has plenty of budget templates hiding right under your nose. They’re easy to use, and they translate your figures into clear tables and charts on a concise, visual summary page.
• Smartsheet has multiple resources for small businesses, including 12-month budget spreadsheets, department budget templates, projection templates, project-by-project templates, and startup templates. These templates are ideal if you’re looking for a little more detail.
• Scott’s Marketplace is a blog for small businesses. Their budget template comes with step-by-step instructions that make it dead simple for anyone.
• Vertex42 focuses on Excel spreadsheets and offers templates for both product-based and service-based businesses, as well as a business startup costs template for anyone launching a new business.

Budgeting + bookkeeping = a match made in heaven

Making a budget is kind of like dreaming: it’s mostly pretend. But when you can start pulling on accurate historical financials to plan the upcoming year, and when you can check your budget against real numbers, that’s when budgets start to become useful.

The only way to get accurate financial data is through consistent bookkeeping.

Don’t have a regular bookkeeping process down pat? Check out our free guide, Bookkeeping Basics for Entrepreneurs . We’ll walk you through everything you need to know to get going yourself, for free.

If you need a bit more help, get in touch with us. 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.

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Key takeaways

• A business budget is a financial plan that helps estimate a company's revenue and expenses, making it an essential tool for small businesses
• The steps to creating a business budget include choosing budget and accounting software, listing expenses and forecasting revenue
• If a business finds itself in a budget deficit, strategies such as cutting costs, negotiating with suppliers and diversifying revenue streams can help

As a small business owner, keeping your finances organized through a business budget is crucial to running a successful company.

Business budgeting involves creating a financial plan that estimates future revenue and expenses to make informed financial decisions, which can ultimately move the needle on your business’s financial goals and help it grow in profitability.

What is a business budget?

A business budget is a financial plan that outlines the company’s current revenue and expenses. The budget also forecasts expected revenue that can be used for future business activities, such as purchasing equipment. It sets targets for your business’s revenue, expenses and profit and helps you determine if you’ll have more money coming in than you pay out.

A business budget is an essential tool that helps you make wise business decisions. Without it, it’s difficult to gauge your business’s financial health.

What is the difference between a cash flow statement and a business budget?

A cash flow statement  (CFS) is a financial document that summarizes the movement of cash coming in and going out of a company. The CFS gauges how effectively a company manages its finances, including how it manages debt responsibilities and funds day-to-day operations.

It’s similar to a business budget in that you can see expenses and revenue. But while a budget gives a moment-in-time snapshot of your business’s financial performance compared to forecasts, the cash flow statement focuses on the actual inflows and outflows of money through your business.

Follow these steps to ensure a well-developed budget, from understanding your expenses to generating revenue and adjusting expenses to balance the budget.

1. Choose a budget and accounting software

First, you’ll want to store your expense and revenue information with accounting software to help you track your numbers and generate reports. Some software may also help you assign categories to the transactions, identify tax deductions and file taxes. Quickbooks is an example of accounting software.

Some business bank accounts also have accounting software built in, helping you stay organized by keeping your accounting and banking in one place.

2. List your business expenses

The next step in creating a small business budget is to list all your business expenses. Here are the types of expenses you want to include in your budget:

• Fixed expenses: Fixed expenses cost a fixed amount monthly or within the assessed period. Those costs include rent, insurance, salaries and loan payments.
• Variable expenses: Variable expenses can change monthly or over time, making them trickier to budget. This might include materials, direct labor, utility bills or marketing expenses.
• Annual or one-time costs: Some costs only occur a few times per year, while others you’ll only pay for as needed, such as buying new equipment. You still want to budget for these expenses by allocating a portion of your weekly or monthly budget toward one-time expenses.
• Contingency funds: Unexpected business costs can throw a wrench in your budget if not planned for. Such costs could include emergency repairs, necessary equipment purchases, sudden tax increases or unforeseen legal fees. To plan for these costs, you can create a contingency or emergency fund that’s separate from your operational budget.
• Maintenance costs: To allocate funds for maintenance costs, begin by including regular inspections and maintenance in your budget. Then, make sure to leave room for changes and unexpected maintenance costs.

3. Forecast your revenue

To estimate your future revenue, start by deciding on a timeline for your forecast. A good place to start is the previous 12 months. Your accounting software may also include revenue forecasting as one of its features, which can automate this step for you.

The timeline and your recent past growth can help you understand how much revenue you’ll generate in the future. Consider external factors that could drive revenue growth, such as planned business activities like expansion, marketing campaigns or new product launches.

You’ll also want to think about anything that might slow your growth. Many businesses experience seasonal fluctuations, which can impact your budget if you don’t plan for it. To account for these changes, list the minimum expenses required to keep your business running. Use your financial statements to understand these costs, and consider averaging out irregular expenses over the year to avoid surprises.

Ideally, your business should build a cash reserve during profitable periods to cover expenses during slower seasons. If necessary, consider various financing options, such as a business credit card or line of credit, that you can draw from to manage cash flow during peak or off times. Lightbulb Bankrate insight If you use debt financing to cover an expense, make sure that you can manage the debt in your regular business budget. Avoid going into debt when you don’t have a clear plan to pay it off or when you’re uncertain about your business’s profitability.

4. Calculate your profits

The next step in creating a business budget is to calculate your business profits. You can look at your total profits by calculating revenue minus expenses. That way, you see how much money you have to work with, called your working capital .

You should also understand your profit margins for each of your products and services, which can help you set prices or decide whether to offer a new product or service.

How to calculate your profit margins

To find out your gross profit margin, you’ll first need to calculate the gross profit. To calculate your business’s gross profit, subtract the cost of goods sold (COGS) from your total revenue. COGS includes all the expenses related to producing your products and services.

Once you have the gross profit, use the gross profit margin formula: (Revenue – COGS) / Revenue x 100. This will give you a percentage that shows how much profit you gain from that particular product after accounting for the product’s costs. Calculator Bankrate insight If your total product revenue is $50 and the total production costs are $35, your gross profit would be $15. To find the gross profit margin, you’d do the following calculation: ($50-$35) / $50 x 100 = 30%. The gross profit margin in this example is 30 percent.

5. Make a strategy for your working capital

Knowing what to do with extra revenue, which is your working capital, is crucial for managing your business finances and growth. Here’s how to get started with a financial strategy that propels your business goals forward:

• Set spending limits for different categories in your budget. When listing your expenses, you should have set a dollar amount for each category. You can estimate this by a monthly average or a general forecasted amount.
• Set realistic short- and long-term goals. These goals will motivate you to stick to your budget and guide your spending decisions.
• Compare your actual spending with your net income and priorities. Look at the areas you’re spending and consider whether you need to reallocate money to different categories. Consider separating expenses into business needs and extras.
• Adjust your budget and actual spending. Adjust your spending to ensure you do not overspend and can allocate money towards your goals. If you need to cut spending, consider the categories that are extras, such as types of marketing that you don’t know will generate a return on investment.

6. Review your budget and forecasts regularly

Finally, review your budget regularly. By frequently checking in on your budget, you can identify any discrepancies between your planned and actual expenses and adjust accordingly. This allows you to proactively handle any financial issues that may arise rather than reacting to them after they’ve become a problem.

Regular reviews also allow you to refine your budgeting process and improve its accuracy over time. Keep in mind that your budget is not set in stone but rather a tool to guide your financial decisions and help you achieve your business goals. Lightbulb Bankrate insight As you create your business budget and make business decisions, you can write or adjust your business plan to match your evolving priorities. The business plan outlines your business goals and the steps and strategies you’ll take to achieve them.

What to do if you have a deficit in your business budget

Finding a deficit in your small business budget can be alarming, but there are several strategies you can employ to handle this situation.

• Do a cash flow analysis. Begin by doing a cash flow analysis to review what your business is earning and spending money on. Identify potential problems and adjust the budget as needed to prevent overspending.
• Cut nonessential business costs. Cutting spending may involve eliminating nonessential costs and transferring funds from other categories to overspent categories. Your goal is a balanced or profitable budget.
• Negotiate with suppliers. Be transparent in your communications with suppliers and explain your quality standards and why you’re seeking cost reduction. Explore options for cost reduction that do not compromise quality, such as process improvements or ordering in larger quantities.
• Create a lean business model. By removing anything that doesn’t benefit your customer, your business can potentially save time and resources. Lean business models focus on continually improving processes and customer experience without adding additional resources, time or funds.
• Add revenue and diversify revenue streams. Raising revenue requires a realistic plan with measurable goals to increase sales and overall business income. You can also consider other products and services you could offer that would make your business profitable.
• Use financing to cover temporary gaps. Applying for a small business loan can help pay bills during an unplanned shortfall. Since this will add an expense to your budget, make sure you can handle the loan repayments and your regular expenses.
• Plan for a deficit. In some cases, a planned budget deficit might be a strategic decision, such as investing in new opportunities that promise long-term benefits.

Bottom line

Having a well-developed business budget is crucial for making informed decisions. You can effectively manage your small business’s finances by tracking and analyzing your business’s inflows and outflows, forecasting your expected revenue and adjusting your budget to stay balanced.

Even in the face of a budget deficit, there are various strategies you can use to keep your business profitable, including negotiating costs with your suppliers, assessing your business operations and offering new products and services.

With a solid business budget in place, you can confidently navigate financial challenges and drive long-term success for your small business.

Frequently asked questions

What are the benefits of a business budget, what are the components of a business budget, how do you calculate fixed and variable costs in a business budget, related articles.

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How to Create a Business Budget for Your Small Business

According to a study done by CBinsights, a few of the top reasons why small businesses fail include include pricing and cost issues, losing focus and running out of cash. These issues can be prevented by having a realistic budget in place.

Before you can focus on the budget, however, you need to identify what aspects of your business you’d like to improve. This will allow you to decide what can be done with your funds. Based on that list, you can set up short-term and long-term goals.

These goals will be directly affected by your incoming and outgoing cash. A short-term goal can be paying off a debt or purchasing new equipment. Long-term goals, like keeping aside marketing expenses, are crucial because they are connected to the overall growth of your business.

You should be practical about the goals you set. They should be purely based on your business’ capacity to spend and save. Once you have your goals in place, you can create an effective, foolproof budget by following these steps.

1. Analyze costs

Before you start drafting a budget, you must research the operating costs involved in your business. Knowing your costs inside and out gives you the baseline knowledge needed to craft an effective spending plan.

If you create a rough budget and later discover that you need more money for your business activities, this will jeopardize your goals. Your budget should be such that you can increase your revenue and profit enough as your business expands to handle your growing expenses. Your budget should factor in fixed, variable, one-time, and unexpected costs. Some examples of a fixed expense are rent, mortgages, salaries, internet, accounting services, and insurance. Examples of variable costs include cost of goods sold and commissions for labor.

There is not much harm in overestimating the costs involved since you will need enough cash to handle your future expenditures. If your business is new, then you must include start-up costs as well. Planning the budget this way will help you make informed decisions and tackle any unwanted financial surprises.

2. Negotiate costs with suppliers

This step will be useful for those businesses which have been functional for more than a year and are dependent on suppliers to sell products. Before you get started on your yearly budget, have a chat with your suppliers and try getting discounted rates for the materials, products, or services you need before you make your payments.

Negotiations allow you to create trustworthy relationships with your suppliers. This will be helpful when incoming cash is thin. For example, you might have a seasonal business. When you have enough cash saved, you can pay advance amounts to your suppliers as compensation for the times when you are unable to make payments. The main goal here is to find efficient ways to reduce cost of doing business.

3. Estimate your revenue

Many businesses have failed in the past by overestimating revenue and borrowing more cash to meet operational needs. This defeats the very purpose of creating a budget. To keep things realistic, it’s a good idea to analyze previously recorded revenue. Businesses must track revenue periodically on a monthly, quarterly and annual basis.

Your previous year’s revenue figures can act as a reference point for the upcoming year. It’s important to rely solely on this empirical data. This will help you set realistic goals for your team, leading to the eventual growth of your business.

4. Know your gross profit margin

The gross profit margin is the cash you are left with after your business has dealt with all the expenses at the end of the year. It gives insight into the financial health of your business. Here’s an example of why you need to understand this parameter while creating a budget.

Suppose your business made a revenue $5,000,000 and yet there are debts to be paid. At the end of the year, your expenses are more than your revenue, which is not a good sign for a growing business. This tells you that you must identify the expenses that are not benefiting the business in any way and eliminate them. The best way to do this would be to list out the cost of goods sold for all materials and deduct them from the overall sales revenue. This information is needed to get a real picture on how your business is faring, allowing you to increase profit and reduce costs.

5. Project cash flow

There are two components to cash flow : customer payments and vendor payments. You need to balance these two components to keep the cash flowing in your organization.

To do your best to ensure timely customer payments, it’s important to have flexible payment terms and the ability to receive payments through common payment channels. Unfortunately you will need to deal with customers who might not comply to the stated terms. This might affect your cash flow forecast due to missing payments.

You can encourage payment by giving customers a grace period and creating strict business policies for paying late. Beyond this, you must have some money allocated in your budget for ‘bad debt,’ in case the customer never pays.

When you know your incoming cash flow, you can fix an amount for your employee salaries and travel expenses. You can also allocate some money to pay off your fixed vendor expenses. If you are still left with cash, you can then spend on business initiatives such as professional development or new equipment.

6. Factor in seasonal and industry trends

It’s unrealistic to expect that you will achieve every business goal and reach your estimates every month. In an annual cycle, there will be months where your business will be booming, and there may be a few months where sales are slow. Due to seasonal inconsistency and industry trends, you will have to spend cash effectively so that the business isn’t at risk of shutting down during slower periods.

To overcome this challenge while creating a budget, gather insights as to when your business performs better. The aim should be to generate enough revenue during peak months to sustain the business during off seasons.

For example, let’s assume that you are a business owner of a winter clothing company. Your products are on demand only during that season, so most of your revenue comes during that period. For the rest of the year, you can use the earnings to keep the business going and market to specific target groups, like hikers or travelers. 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.

7. Set spending goals

Making a budget is more than just adding your costs and subtracting them from your earnings. How wisely you spend your money determines how well your business will fare. Goals provide a system to check if your money is being spent on the right areas to avoid unwanted expenses.

For example, if you are spending money on stationary that is going unused for operational or marketing efforts, it may be time to cut those costs. This money can be better applied to your marketing campaigns, bringing in more leads and revenue. Gauge and invest in those expenses that would benefit your business in the long run.

8. Bring it all together

Once you have gathered all the information from the previous steps, it’s time to create your budget. After you have subtracted your fixed and variable expenses from your income, you will get an idea of the amount that you can work with. Be prepared to tackle the unexpected one-time expenses that come your way. You can then find ways to use the money effectively to achieve your short-term and long-term goals.

Role of accounting software in budgeting

Budgeting for a business is a large task, which is why you might need assistance. Creating a budget will involve analyzing costs, estimating revenue, and projecting cash flow. Having an accounting system in place will give you real-time information about your finances, helping you to create a feasible budget.

The key to creating a good budget is to evaluate the previous years’ data and draw realistic projections. An accounting system can give you access to all this information in one place, no matter when you need it.

The effectiveness of a budget also depends on how well any projected goals have been achieved by your business. To check this, an accounting system generates financial reports that record your actuals, and those can then be compared with the budget. Comparing your budget with your actuals is an important step to gauge the effectiveness of a budget.

Budgeting is an essential process, especially for small businesses, as it allows business owners to estimate and allocate money for different business activities. Preparing a budget also gives you a clear idea of the money that can be used to achieve business goals and ensure that there is enough in hand to handle a crisis. For small businesses, it might get a bit difficult to make estimations for the whole year as the initial stages of growing an organization are often volatile. In such cases, you can create smaller budget estimates for a duration of two or three months and keep reviewing it for better results. When an accounting system is introduced, the process becomes even more manageable. You can easily handle tasks like projecting cash flow or estimating costs, and you can set realistic goals for your business.

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How to Create a Business Budget for Your Small Business

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If you’ve just started your business, chances are that you have yet to create a budget. But it’s difficult to grow your business, meet any short- or long-term goals, or obtain outside investors or financing without accurate financial projections, which requires a small business budget.

Creating a budget also plays an important role in the the accounting cycle, which ensures that all financial transactions are properly accounted for.

And while the act of creating a budget may seem daunting, it’s much like creating a personal budget. You identify what you own of value (your assets), estimate your upcoming expenses, and account for and grow your revenue base.

If you know how to create an expense report or how to write an invoice, and are comfortable with the basics of bookkeeping, you can certainly handle business budget planning.

By creating, and more importantly, following a budget, you can eliminate wasteful spending, develop plans to expand your revenue base, and work toward your set goals in a productive fashion.

5 types of budgets for businesses

Budgets help businesses track and manage their resources. Businesses use a variety of budgets to measure their spending and develop effective strategies for maximizing their assets and revenues. The following types of budgets are commonly used by businesses:

1. Master budget

A master budget is an aggregate of a company's individual budgets designed to present a complete picture of its financial activity and health. The master budget combines factors like sales, operating expenses, assets, and income streams to allow companies to establish goals and evaluate their overall performance, as well as that of individual cost centers within the organization.

Master budgets are often used in larger companies to keep all individual managers aligned.

2. Operating budget

An operating budget is a forecast and analysis of projected income and expenses over the course of a specified time period.

To create an accurate picture, operating budgets must account for factors such as sales, production, labor costs, materials costs, overhead, manufacturing costs, and administrative expenses. 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.

3. Cash flow budget

A cash flow budget is a means of projecting how and when cash comes in and flows out of a business within a specified time period. It can be useful in helping a company determine whether it's managing its cash wisely.

Cash flow budgets consider factors such as accounts payable and accounts receivable to assess whether a company has ample cash on hand to continue operating, the extent to which it is using its cash productively, and its likelihood of generating cash in the near future.

A construction company, for example, might use its cash flow budget to determine whether it can start a new building project before getting paid for the work it has in progress.

4. Financial budget

A financial budget presents a company's strategy for managing its assets, cash flow, income, and expenses. A financial budget is used to establish a picture of a company's financial health and present a comprehensive overview of its spending relative to revenues from core operations.

A software company, for instance, might use its financial budget to determine its value in the context of a public stock offering or merger.

5. Static budget

A static budget, unlike a flexible budget, is a fixed budget that remains unaltered regardless of changes in factors such as sales volume or revenue. A plumbing supply company, for example, might have a static budget in place each year for warehousing and storage, regardless of how much inventory it moves in and out due to increased or decreased sales.

How to make a budget for your small business

One of the easiest and most accurate ways to create a budget is to review your revenue and costs for the past year and use those numbers when creating your new budget.

If your business is brand new, you’ll have to be a bit more creative, relying on obtaining numbers from the last few months, or researching similar businesses to obtain accurate estimates on revenue and expenses.

However you do it, learning budgeting for business is a lot easier than you imagine.

Step 1: Review your revenue

The first step toward creating a budget is to examine your revenue: not just the total for any given time, but specifics, such as months when revenue rose or dipped. This is particularly important for managing cash flow.

For instance, many retailers earn a large part of their yearly revenue in the months of November and December, while January and February typically are very slow in sales.

Knowing this information and including it in your budget can help you be better prepared for both the busy and the slow months.

Step 2: Take a look at your fixed expenses

As a small business owner, you should know what your regular monthly expenses are. If you know how to track business expenses such as rent, insurance, salaries, and utilities, you can create a budget.

Factoring these items into your budget helps to ensure that you’re accounting for these expenses properly.

Step 3: Factor in variable expenses

Whether in our personal lives or in business, we need to factor in variable expenses.

For instance, you may need to hire a temp if your office manager becomes unexpectedly ill. Other variable costs can include advertising and marketing, as well as postage or printing costs. Travel is another cost that may be planned (you know you’re going to a convention in May), but the final cost is not yet known.

Factoring in variable expenses can help with your bottom line. Don’t be conservative in estimating these costs, You’d rather they be too high, leaving you more money than expected for the month than the opposite.

Step 4: Include one-time and unexpected costs

While it may seem counterintuitive to include unexpected costs into your budget when they haven’t even occurred yet, you can safely assume that something unexpected will happen.

Your computer crashes and needs to be repaired, or worse, replaced. Or maybe your company car dies. These are both examples of unexpected costs. You can also plan for one-time costs.

For instance, you know you’ll be upgrading employee laptops in December. This allows you to plan for this expense in advance, ensuring that the funds should be available.

Step 5: Put all your information into a budget format

The ideal situation is to prepare your budget details in your accounting software application.

However, not all accounting software, particularly those designed for small businesses, include a budgeting feature. In that case, you can use Microsoft Excel or similar spreadsheet software to prepare your budget.

This Microsoft Excel spreadsheet can be used to create your business budget. Image source: Author

One of the main advantages of preparing a budget in your accounting software application is that you can track budget versus actual revenue and expenses. This lets you see how accurate (or not) your budget is, allowing you to perhaps make some mid-year adjustments.

Things to consider when making a budget for your business

Creating a budget is a great first step toward managing your business properly. However, it’s important when creating your budget that you do your best to make it as accurate as possible. There are numerous ways to do that, including the following:

1. Be conservative with revenue

When entering revenue totals, be conservative. At the beginning of the year, we're all optimistic. But be sure when you budget your revenue, you enter numbers that are as accurate as possible.

When planning for revenue growth, be conservative as well, perhaps budgeting for a 5%-10% growth for the year. If you exceed that level, great. You’ll have money to spare. But if you don’t, you’ll end up with a loss, which is not where you want your business to be.

2. Plan for growth

Planning for growth is important when calculating budget revenue, but you’ll have to account for added expenses as well.

Yes, if your business grows, your revenue will increase, but so will your overhead, as you increase advertising, add employees, and pay additional taxes. So when planning for business growth, be sure to factor in your increased expenses as well.

3. Unexpected expenses

This is an important one. One catastrophe can be disastrous for your business, particularly if you operate on limited cash flow.

When budgeting, just assume that your business will have at least one major unexpected expense during the year. If it doesn’t, great. You can bank that money for when the unexpected does occur.

4. Long-term goals

Before completing your budget, you might want to consider your long-term goals.

Do you plan on increasing your customer base each year by 5%? 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.

Be sure to factor that into your budget, and plan your income and expenses accordingly.

The best accounting software for tracking your small business budget

Not every accounting software application offers budgeting capability, but the following small business accounting software applications do.

If you’re looking to make the move to accounting software, or are looking for an application that allows you to create and manage a budget for your business, be sure and check out these applications.

Xero lets you easily create a budget using their Budget Manager feature. You can choose your start date for any budget, and prepare a budget of 3, 6, 12, or 24 months. Xero also allows you to compare any created budget to actual totals, to see how far under or over budget your company is.

The Budget Manager lets you choose start date, actuals, and period of time for each budget. Image source: Author

You can copy budget details from actuals for the prior year, copy data from an existing budget, or create a new budget from scratch. Adjustments can be made for each budget period, so you can adjust the amount each month to increase budgeted totals by a set amount or by percentage. This is a great way to budget for growth.

2. QuickBooks Online

The budgeting feature in QuickBooks Online lets you create a yearly budget easily. Just choose the correct fiscal year, click on the “Add Budget” button, and start entering budget details.

You can choose to pre-fill budget data using actual QuickBooks Online data or just create a budget from scratch. You have the option to create a monthly, quarterly, or yearly budget, and can choose to subdivide your budget by customer, class, or location, or just enter a single total into the appropriate fields.

The Budget Preview feature lets you preview your newly created budget for accuracy. Image source: Author

Budget data can be edited when desired, and to get a sense of your business performance, run the Budget vs. Actuals report, which displays current company performance to date.

3. Zoho Books

Zoho Books offers excellent budget creation capability, offering three ways to enter budget data:

• Auto-fill budget information based on current income and expense accounts
• Pre-fill from last year’s actual numbers
• Start from scratch, entering budget numbers manually

Like Xero, Zoho Books lets you enter budget numbers for a single period, then specify a percentage increase or decrease in budgeted numbers.

For instance, if your short-term plan for this year is to increase your revenue by 5% each quarter, you can enter that information in Zoho Books, and it will automatically calculate the 5% increase and auto-fill the rest of the budget. You can also apply a fixed amount for each period.

Zoho Books offers a comprehensive budget management feature with multiple entry options. Image source: Author

At the end of the specified budget period, you can compare actuals against your budgeted amounts to view business performance and make any adjustments going forward.

Get started on your budget today

Now that you know how easy it is to prepare a budget for your small business, what are you waiting for?

Completing a budget for your business will provide you with the information you need to grow your business, plan for the unexpected, and stay on track for the future.

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How to Create a Small Business Budget in 5 Simple Steps

Want to protect the financial health of your small business? You need a business budget. Here's how to create one.

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. But there’s one element that you want to stay on top of from the very beginning—and that’s your business budget.

Having a detailed and accurate budget is a must if you want to build a thriving, sustainable business. But how, exactly, do you create one? What are the steps for business budget planning?

As a small business owner, let’s take a look at how to create a business budget in five simple, straightforward steps.

What’s a Business Budget—and Why Is It Important?

Before we jump into creating a business budget, let’s quickly cover what a business budget is—and why it’s so important for small businesses.

A business budget is an overview of your business funds. 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 to improve business success.

And, as a  financially savvy owners, you’ll also want to have a budget in place to help you:

• Make sound financial decisions.  In many ways, your business budgets are like a financial road map. It helps you evaluate where your  business finances  currently stand—and what you need to do to hit your financial goals in the future for business growth.
• Identify where to cut spending or grow revenue.  Your business budgets can help you identify areas to decrease your spending or increase your revenue, which will increase your  profitability  in the process, outline unexpected costs, and help your sustain your business goals.
• Land funding to grow your business.  If you’re planning to apply for a business loan or raise funding from investors, you’ll need to provide a detailed budget that outlines your income and expenses.

Now that you understand why budget creation is so important to your business decisions, let’s jump into how to do it.

Business Budget Step 1: Tally Your Income Sources

First things first. When building a small business budget, you need to figure out how much money your business is bringing in each month and where that money is coming from – this will hep create an operating budget based on your business income.

Your sales figures (which you can access using the Profit & Loss report function in FreshBooks) are a great place to start. From there, you can add any other sources of income for your business throughout the month.

Your total number of income sources will depend on your business model.

For example, if you run a  freelance  writing business, you might have multiple sources of income from:

• Freelance writing projects
• A writing course you sell on your website
• Consulting with other writers who are starting small businesses

Or, if you run a brick-and-mortar retail business, you may only have one source of income from your store sales.

However many income sources you have, make sure to account for any and all income that’s flowing into your business—then tally all those sources to get a clear picture of your total monthly income to build your master business budget template.

Business Budget Step 2: Determine Fixed Costs

Once you’ve got a handle on your income, it’s time to get a handle of your costs—starting with fixed costs.

Your fixed costs are any expenses that stay the same from month to month. This can include expenses like rent, certain utilities (like internet or phone plans), website hosting, and payroll costs.

Review your expenses (either via your bank statements or through your FreshBooks reports) and see which costs have stayed the same from month to month. These are the expenses you’re going to categorize as fixed costs.

Once these costs are determined, add them together to get your total fixed and variable costs expense for the month.

TIP:   If you’re just starting your business and don’t have financial data to review, make sure to use projected costs. For example, if you’ve signed a lease for office space, use the monthly rent you will pay moving forward.

Business Budget Step 3: Include Variable Expenses

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Variable costs don’t come with a fixed price tag—and will vary each month based on your business performance and activity. These can include things like usage-based utilities (like electricity or gas), shipping costs, sales commissions, or travel costs.

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. But when your profits are lower than expected, consider cutting these variable costs until you can get your profits up.

At the end of each month, tally these expenses. 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.

Business Budget Step 4: Predict One-Time Spends

Many of your business expenses will be regular expenses that you pay for each month, whether they’re fixed or variable costs. But there are also costs that will happen far less frequently. Just don’t forget to factor those expenses when you create a budget as well.

If you know you have one-time spends on the horizon (for example, an upcoming business course or a new laptop), adding them to your budget can help you set aside the financial resources necessary to cover those expenses—and protect your business from unexpected costs in the form of a sudden or large financial burden.

On top of adding planned one-time spends to your budget, you should also add a buffer to cover any unplanned purchases or expenses, like fixing a damaged cell phone or hiring an IT consultant to deal with a security breach. That way, when an unexpected expense pops up (and they always do), you’re prepared!

Business Budget Step 5: Pull It All Together

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

On your businesses master budget, you’ll want to tally your total income and your total expenses (i.e., adding your total fixed costs, variable expenses, cost of goods, and one-time spends)—then compare cash flow in (income) to cash flow out (expenses) to determine your overall profitability.

Having a hard time visualizing what a business budget looks like in action? Here’s an operating budget example to give you an idea of what your new business budget might look like each month:

A Client Hourly Earnings: $5,000 B Client Hourly Earnings: $4,500 C Client Hourly Earnings: $6,000 Product Sales: $1,500 Loans: $1,000 Savings: $1,000 Investment Income: $500

Total Income: $19,500

Fixed Costs

Rent: $1,000 Internet: $50 Payroll costs: $5,000 Website hosting: $50 Insurance: $50 Government and bank fees: $25 Cell phone: $50 Accounting services : $100 Legal services: $100

Total Fixed Costs: $6,425

Variable Expenses

Sales commissions: $2,000 Contractor wages: $500 Electricity bill: $125 Gas bill: $75 Water bill: $125 Printing services: $300 Raw materials: $200 Digital advertising costs: $750 Travel and events: $0 Transportation: $50

Total Variable Expenses: $4,125

One-Time Spends

Office furniture: $450 Office supplies for new location: $300 December business retreat: $1,000 New time tracking software: $500 Client gifts : $100

One-Time Spends: $2,350

Expenses: $12,900

Total Income ($19,500) – Total Expenses ($12,900) = Total Net Income ($6,600)

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.

For example, if you realize you’re in the red and spending more than you earn, you might cut your spending and focus on  finding new clients . Alternatively, if your income is significantly higher than your expenses, you might consider investing your profits back into your business (like investing in new software or equipment).

Use Your Business Budget to Stay on Track

Putting in the work to create a budget for your small business may seem like a hassle. But while it takes a bit of time and energy, it’s worth the extra effort. 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.

This post was updated in October 2023

Written by Deanna deBara , Freelance Contributor

Posted on June 20, 2017

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The Best Free Business Budget Templates in 2024

Published: July 18, 2024

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.

In my roles, I’ve needed to create budgets for whole projects and smaller writing projects.

While organizing the numbers may sound difficult, I’ve found that using a business budget template makes the process simple. Plus, there are thousands of business budget templates for you to choose from.

In this article, I’ll share seven budget templates that can help organize your finances. But first, you’ll learn about different types of business budgets and how to create one.

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What is a business budget?

Types of budgets for a business, how to create a business budget, how to manage a business budget, why is a budget important for a business, best free business budget templates.

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A business budget is a spending plan that estimates the revenue and expenses of a business for a period of time, typically monthly, quarterly, or yearly.

The business budget follows a set template, which you can fill in with estimated revenues, plus any recurring or expected business expenses.

For example, say your business is planning a website redesign. You'd need to break down the costs by category: software, content and design, testing, and more.

Having a clear breakdown will help you estimate how much each category will cost and compare it with the actual costs.

1. Gather financial data.

Before you create a business budget, it’s important to gather insights from your past financial data. By looking at income statements, expense reports, and sales data, you can spot trends, learn from past experiences, and see where you can make improvements.

Going through your financial history helps you paint an accurate picture of your income and expenses. So, when you start creating your budget, you can set achievable targets and make sure your estimates match what's actually been happening in your business.

Besides past financials, consider new expenses. For instance, if your business is looking to try a new marketing channel, you’d need to document your goals for that channel. Afterward, walk backward to figure out how much you need to achieve those goals and include it in your budget.

2. Find a template or make a spreadsheet.

There are many free or paid budget templates online. You can start with an existing budget template. We list a few helpful templates below.

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How to Create a Basic Business Budget

8 Min Read | Aug 28, 2024

You’d never intentionally set your business up to fail, right? But if you don’t know your numbers and how to make a business budget, that’s exactly what you’re doing. Money problems and bad accounting are two reasons why many small businesses don’t make it past their first five years. 1

Talking about budgets can feel overwhelming. We get it. For a lot of business leaders, it’s a lot more comfortable dreaming up big ideas and getting stuff done than digging into numbers. But you can’t set yourself up for steady growth until you have a handle on the money flowing in and out of your company. You also can’t enjoy financial peace in your business.

Not a numbers person? That’s okay. Follow the simple steps below to learn how to create a budget for a business and manage your finances with confidence. We’ll even give you a link to an easy-to-use small-business budget template in the EntreLeader’s Guide to Business Finances .

But before we get to that, let’s unpack what a budget is and why you need one.

Don't Let Your Numbers Intimidate You

With the EntreLeader’s Guide to Business Finances, you can grow your profits without debt—even if numbers aren’t your thing. Plus, get a free business budget template as part of the guide!

What Is a Business Budget?

A business budget is a plan for how you’ll use the money your business generates every month, quarter and year. It’s like looking through a windshield to see the expenses, revenue and profit coming down the road. Your business budget helps you decide what to do with business profit, when and where to cut spending and grow revenue, and how to invest for growth when the time comes. Leadership expert John Maxwell sums it up: “A budget is telling your money where to go instead of wondering where it went.”

But here’s what a business budget is not: a profit and loss (P&L) report you read at the end of the month. Your P&L is like a rearview mirror—it lets you look backward at what’s already happened. Your P&L statement and budget are meant to work together so you can see your financial problems and opportunities and use those findings to forecast your future, set educated goals, and stay on track.

Why Do I Need to Budget for My Business?

Creating a budget should be your very first accounting task because your business won’t survive without it. Sound dramatic? Check this out: There are 33.2 million small businesses in the United States. Out of the small businesses that opened from 1994 to 2020, 67.7% survived at least two years. But less than half survived past five years. 2    The top reasons these businesses went under? They hit a wall with cash-flow problems, faced pricing and cost issues, and failed to plan strategically . 3

As a business owner, one of the worst feelings in the world is wondering whether you’ll be able to make payroll and keep your doors open. That’s why we can’t say it enough: Make a business budget to stay more in control and have more financial peace in running your business.

A budget won’t help you earn more money, but it will help you:

• Maximize the money you’ve got
• Manage your cash flow
• Spend less than your business earns
• Stay on top of tax payments and other bills
• Know if you’re hitting your numbers so you can move at the true speed of cash

How to Create a Budget for a Business

Your ultimate goal is to create a 12–18-month business budget—and you will get there! But start by building out your first month. Don’t even worry about using a fancy accounting program yet. Good ol’ pen and paper or a simple computer document is fine. Just start! Plus, setting up a monthly budget could become a  keystone habit  that helps kick-start other smart business habits.

Here’s how to create your first budget for business:

1. Write down your revenue streams.

Your revenue is the money you earn in exchange for your products or services. You’ll start your small- business budget by listing all the ways you make money. Look at last month’s P&L—or even just your checking account statement—to help you account for all your revenue streams. You’re not filling in numbers yet. Just list what brings in revenue.

For example, if you run an HVAC business, your revenue streams could be:

• Maintenance service calls
• Repair services and sales
• New unit installation
• Insulation installation
• Air duct cleaning

2. Write down the cost of goods sold (if you have them).

Cost of goods is also called inventory. These expenses are directly related to producing your product or service. In the HVAC example, your cost of goods would be the price you pay for each furnace and air conditioning unit you sell and install. It could also include the cost of thermostats, insulation and new ductwork.

3. List your expense categories.

It’s crazy how much money can slip through the cracks when we’re not careful about putting it in the budget. Think through  all  your business expenses—down to the last shoe cover your technicians wear to protect your customers’ flooring during house calls. Here’s a list of common business budget categories for expenses to get you started:

• Office supplies and equipment
• Technology services
• Training and education

Related articles : Product Launch: 10 Questions to Ask Before You Launch a New Product New Product Launch: Your 10-Step Checklist

4. Fill in your own numbers.

Now that you have a solid list of revenue and expense categories, plug in your real (or projected) numbers associated with them. It’s okay if you’re not sure how much you’ll sell just yet or exactly how much you’ll spend. Make an educated guess if you’re just starting out. If your business has been earning money for a while, use past P&L statements to guide what you expect to bring in. Your first budget is about combining thoughtful guesswork with history and then getting a more realistic picture month over month.

5. Calculate your expected profit (or loss). 

Now, number nerds and number haters alike—buckle in. We’re about to do some basic accounting so you know whether you have a profit or loss. This is your chance to figure out exactly how much you’re spending and making in your business.

Take your  gross revenue (the total amount of money you expect to make this month) and subtract your expenses and  cost of goods sold  to find your profit or loss. Here’s what that calculation looks like:

Revenue - Expenses - Cost of Goods Sold = Profit or Loss

Don’t freak out if your first budget shows a loss. That actually happens a lot with your first few monthly budgets. You’re learning and getting context on what’s coming in and going out so you can make adjustments. Keep doing your budget, and before you know it, you’ll be a rock star at telling your money where to go, planning for emergencies ,  investments and opportunities , and building momentum.  

6. Review your budget often. 

Whew! Once you get that first business budget under your belt, take a deep breath and celebrate. You’ve just done something huge for your business! (You’ll also be happy to know, budgeting gets easier from here since you can copy and paste your first one and tweak your income and expenses each month.)

But here’s the thing: Your budget can’t just sit in a drawer or on your computer. You’ve got to look at it consistently to make sure you’re actually following it.

Weekly Review

At least once a week, someone in your business (whether it’s you, a qualified team member or a bookkeeper) needs to track your transactions so you know what’s happening with your money all month. Then you can make adjustments before you have more month than money.

Every time you review your budget, ask yourself these three questions:

• Are we on target to hit our revenue goal this month?
• If not, what we can change to get there?
• Are there any expenses we can cut or minimize?

Monthly Review

You also need to review your business budget when you close your books every month to compare it to your actuals—your P&L. Otherwise, how can you know how you’re doing?

7. Work toward a 12–18-month budget.

Now that you’ve created your first month’s budget, move on to the next one. You’ve got this! The more budget-building reps you get in, the better you’ll be at looking forward and planning for growth. In no time, you’ll reach that ultimate goal of a 12–18-month budget. Just keep adjusting as you go based on all you’re learning about getting an accurate road map for your finances.

As you start owning your numbers, remember: It’s okay if you’re a little intimidated by the process of accounting and making a budget for business. But it’s not okay to avoid the financial details that will make or break you. So just keep applying the basics we covered and keep moving forward.

Follow the steps above to create your budget, and review it often to stay on track.

Want a tool to make budget building simpler? Check out the EntreLeader’s Guide to Business Finances. It includes an easy-to-use small-business budget template in the extra resources section.

What are the benefits of budgeting?

A business budget will help you:

• Make informed, strategic decisions
• Invest in under-resourced areas
• Trim over-resourced areas
• Plan for the future
• Set goals and track your progress

Does using a small-business budget template save time?

Yes! Using a small-business budget template helps you plug in the numbers you need to operate with more confidence and fewer wrong turns. Check out the small-business-budget template inside our EntreLeader’s Guide to Business Finances .

How do I budget if I own a seasonal business?

Just like farmers put extra hay in the barn to cover leaner months, if you’re a seasonal business owner, you need to set aside resources in times of plenty to cover months your business turns down. Use your P&L statements to go back in time and look at financial performance year over year. Then, create your business budget based on what you learn and on any changes you see coming. You can also go to trade conferences to get an idea of your industry’s seasonal benchmarks.

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EntreLeadership is the part of Ramsey Solutions that exists to help small-business owners thrive by mastering themselves, rallying their teams, and imposing their will on the marketplace. Thousands of leaders use our proven EntreLeadership System and resources to develop as leaders and grow their businesses. These resources include The EntreLeadership Podcast , EntreLeadership Elite digital membership , books, live events, coaching sessions and business workshops. Learn More.

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How to Create an Expense Budget

4 min. read

Updated October 27, 2023

One of the fundamentals of your financial plan and the start of good business management is managing expenses. That starts with an expense budget. Set your budget as a goal, then review and revise often to stay on track. Being right on budget is usually good, but good management takes the regular review to check on the timing, efficiency, and results of what your business spends.

For the record, we could call it an expense forecast, or projected expenses. Those are the same thing. Regardless of what you call it when you combine it with projected sales and costs, you have what you need to project your profit or loss.

• The key types of expenses in business spending

Expenses make up just one of the three common types of spending in a normal business.

Expenses  mostly include operating expenses, like rent, utilities, advertising, and payroll. That’s what I’m talking about in this article.

Direct costs  are another type of spending—another way to say it is the costs of goods sold (COGS), or what you spend on what you sell. For example, the COGS for a bookstore are the costs of buying the books it resells to its customers. Those go in your  sales forecast .  

Repaying debts and purchasing assets  is the third type of spending. These affect your  cash flow  (the amount of real cash you have on hand to pay bills) and your balance sheet, but not your profits—which are left over after you pay your bills.

• Your expense budget

It’s all about educated guessing.

Don’t expect to accurately guess the future. Do use your experience, educated guessing, a bit of research, and common sense to estimate expenses in line with sales and costs and your planned activities.

The math is simple

The illustration here shows a sample expense budget from a soup delivery subscription plan we use as an example.

The math and the logic is simple. Make the rows match your accounting as much as possible. Set timeframes and estimate what expenses will be for each of the next 12 months, and then for the following two years as estimated annual totals.

In the example, the two owners know their business. As they develop their budget, they have a good idea of what they pay for kitchen time, Facebook ads, commissions, office equipment, and so on.

And if you don’t know these numbers for your business, find out. If you don’t know rents, talk to a broker, see some locations, and estimate what you’ll end up paying.

Do the same for utilities, insurance, and leased equipment: Make a good list, call people, and take a good educated guess.

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Payroll and payroll taxes are operating expenses

Expenses also include payroll, wages and salaries, or compensation. They are worth a list of their own. In the case of the soup business in the example above, for payroll, they do a separate list so they can keep track. Payroll is a serious fixed cost and an obligation. Here is the payroll budget associated with the sample plan above.

Notice that the totals from the personnel plan show up in the expense budget. And you can see the estimated expense for benefits over and above the gross salary. Employee-related expenses include payroll taxes along with what they budget for health insurance and other benefits.

Don’t worry too much about depreciation

Depreciation is a special case. Traditionally, it counts as an operating expense, but a lot of businesses budget for it separately because it doesn’t actually cost money.

It’s a concept the tax code allows us to deduct as a business expense, in theory, to allow for the gradual decline in the value of an asset, or—depending on which expert you follow—to allow money to buy new assets when existing assets become obsolete.

The argument for including it in the expenses is that it gives a more accurate picture of profits. And many people separate depreciation from the other expenses so they can calculate EBITDA, which is earnings before interest, taxes, depreciation, and amortization (which is like depreciation, but for intangible assets).

Bottom line:  Include it or not; it’s your choice.

Yes, interest expense is an expense

Because interest is also excluded from EBITDA, many people also exclude it from operating expenses. They list it separately, along with depreciation, to make the EBITDA calculation easier. I say you can do that either way, it doesn’t matter, as long as you include the interest expense in your budget. Because, unlike depreciation, interest does cost money.

• Remember the underlying goal

The purpose of the budget is to help you make good decisions.

Set expenses to align with your strategy and tactics, so you do what works best for your long-term progress. Match your accounting categories as much as possible, so you can track later. Keep track of assumptions so when things come out different from the plan —and they always do—you can adjust quickly.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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How to Create a Business Budget

Last Updated: July 21, 2024 Approved

This article was co-authored by Samantha Gorelick, CFP® . Samantha Gorelick is a Financial Planner based in New York, New York. She is the Owner of Take Root Financial, a firm that provides accessible financial coaching and advocacy to help clients feel rooted in their financial lives. Before starting Take Root, she was the Lead Financial Planner at Brunch & Budget, a financial planning and coaching organization. She also spent 4 years working at Heron Wealth as a Wealth Advisor. Samantha has 10 years of experience in the financial services industry and has held the Certified Financial Planner™ designation since 2017. Samantha specializes in personal finance, working with clients to understand their money personality while teaching them how to build their credit, manage cash flow, and accomplish their goals. She received a Certificate in Financial Planner from the NYU School of Professional Studies and received a BA from Bard College. wikiHow marks an article as reader-approved once it receives enough positive feedback. In this case, several readers have written to tell us that this article was helpful to them, earning it our reader-approved status. This article has been viewed 182,304 times.

Building a realistic budget is an effective way to help keep your business profitable. To create your budget, you'll need to make a revenue forecast, estimate your costs, and leave enough room for a reasonable profit margin. Don't worry though—it's easier than it sounds. Our how-to guide will walk you through the simple steps of creating your own financial plan, even if you're a total beginner to budgeting!

Understand the Basics of Budgeting

• For example, assume your business is planning for next year. A budget will outline your estimated revenues, and then include a plan for expenses that is less than those revenues, so that you can earn a profit.
• A balanced budget means your revenues are equal to your expenses. A surplus means your revenues exceed expenses, and a deficit means expenses exceed revenues. As a business, your budget should always strive to be in a surplus state.

• A budget should guide every single business expenditure. For example, if you realize midway through a year that your business desperately needs updated computers, you can consult your budget to see how much estimated surplus revenue you will generate for the remainder of the year. You can then explore costs for computer upgrades and see if that fits within the surplus figure while allowing you to earn a profit, or alternatively, if you have the additional revenue to support taking out a loan for the computers.

• Sales: Sales refer to how much total money your business brings in from all sources. A budget will involve an estimate or forecast of your future sales.
• Total costs: Total costs are what it costs your business to generate your sales. These include fixed costs (like rent), variable costs (like materials used to make your products), and semi-variable costs (like salaries).
• Profits: Profits are equal to revenues minus total costs. Since profit is the goal of business, your budget should include expenses that are low enough to earn you a decent return on your investment.

Forecasting Revenue

• Remember that revenue forecasts are rarely accurate. The point is to provide the best possible estimate using the knowledge you have. [6] X Research source
• Always be conservative. This means assume you will receive sales volumes and pricing on the low end of the possible range.

• For example, assume you are opening a therapy practice. Therapists in your region may charge $100 to $200 per hour. Compare your qualifications, experience, and service offerings to your competition, and estimate your price. You may decide $100 is wise.
• If you offer multiple products and services, make sure to research prices for those too.
• When choosing a pricing model, consider not only the hourly rate but also the flat rate. A flat rate offers clients simplicity and predictability, while hourly rates are better for services that vary in time and complexity.

• Do you have any customers or contracts lined up? If so, include these. You can then assume referrals from customers and advertising will add to these volumes over the year.
• Compare to existing businesses. If you have colleagues who have established businesses, ask them what their volumes were like early on. For a therapy practice, your colleagues may tell you during their first year they averaged about 10 client hours a week.
• Look at what drives sales volumes. If you are opening a therapy practice, for example, your reputation, referrals, and advertising will bring in people. You could decide that based on these resources, one new client every two weeks is reasonable. You could then go further and make an estimate that each client will pay for one hour a week, and last for an average of six months.
• Once again, remember that revenue forecasts are purely estimates.

• Look at pricing. Do you have reason to believe your prices will increase or decrease?
• Look at volume. Are more people going to be purchasing your product or service? If your business has been growing by 2% annually, you can assume the same for the following year if no significant changes have occurred. If you plan on aggressively advertising, you could bump that up to 3%.
• Look at the market. Is your market growing? For example, imagine that you run a coffee shop in a downtown neighborhood. You may be aware that the neighborhood is rapidly growing due to new people moving in. This could be reason to add to your growth forecast.

Creating the Budget

• Contact an accountant if you are having difficulties. Chartered Professional Accountants in the UK and Certified Public Accountants (CPAs) in the US are trained to advise businesses in the area of budgeting, and for a fee they can assist you in any aspect of the budget creation process.
• A simple online search of "business budget template" can yield thousands of results. You can even find custom templates for your particular type of business.

• Research online or ask a financial adviser what the typical margins for your kind of business should be.
• If 10% is typical for your business, you know that if you are forecasting $100,000 of revenues, your expenses should equal no more than $90,000.

• Add up all these costs to get an idea of your fixed costs for the next year.
• If you have past financial data, use these fixed costs and adjust them for any rent increases, bill increases, or new costs.

• This will vary depending on how much you sell, which is why it is known as a variable cost. You can use your revenue forecast to determine this. For example, if you estimate you will sell 12 cars in your first year, your inventory costs will be the cost to purchase 12 cars.

• Add up all your estimated semi-variable costs.

• Are your total costs less than your revenues?
• Do your total costs provide a profit margin greater than or equal to your target?
• If the answer to either of these questions are no, you will need to look into making cuts. To do this, look at all your costs, and examine what you can do without. Labor costs are one of the most flexible areas to find savings (though you risk upsetting your employees when you cut hours). You can also look into finding a location with lower rents, or reducing utilities costs.

Expert Q&A

You Might Also Like

• ↑ Samantha Gorelick, CFP®. Financial Planner. Expert Interview. 6 May 2020.
• ↑ http://www.investopedia.com/terms/b/budget.asp
• ↑ https://www.inc.com/encyclopedia/businessbudget.html
• ↑ http://www.entrepreneur.com/article/76418
• ↑ http://articles.bplans.com/how-to-forecast-sales/
• ↑ http://www.investopedia.com/terms/s/semivariablecost.asp

About this article

To create a business budget, start by forecasting your yearly expenditures. To do this, add together fixed costs like rent, insurance, and property taxes. Then, add variable costs like inventory purchases and semi-variable costs like internet packages or employee salaries. Compare this number to your forecasted yearly revenue, which you can determine by comparing to last year’s revenue, or if you’re a new business, by doing market research to figure out what similar businesses make in a year. If your revenue is lower than your expenditures, figure out places you can cut from your budget. To learn how market forecasting can help give you an accurate estimate, keep reading! Did this summary help you? Yes No

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How to Start Budget Planning for Your Business

By tracking cash flow, expenses and revenue, new entrepreneurs can more easily manage their finances and maintain profitability.

Table of Contents

Preparing for the future, especially from a financial standpoint, is crucial for all businesses. Companies need to forecast their revenue and expenses to ensure they remain profitable.

Budget planning provides a snapshot of the expected business expenses for a given time. Having this information can help you forecast various costs, like take-home pay, wages, bills and debt payments. It can also help you put aside emergency funds to draw upon as needed.

Here’s everything you need to know about budget planning for your business.

What is budget planning?

Budget planning is the process of creating a plan to spend your money. It allows you to predict whether you will have enough money to do the things you need or would like to do. 

Budgeting helps you save money for the long term or for when your business needs it most. If your accounting software doesn’t have budgeting features, use a budget calculator. This tool is meant to help you establish a budget, create a savings plan and pay down debt. 

“Budget planning involves looking at external (economy, regulations and laws, etc.) and internal factors (staff, revenue, expenses, etc.) and then estimating needs, incorporating unexpected things, developing future goals, and looking at historical information and trends,” said JeFreda R. Brown, CEO of Goshen Business Group. 

Why is budget planning important?

Budget planning is more than just a helpful tool; it’s essential to understanding and nurturing the financial health of your business.

“When you take the time to put the numbers to paper, you increase your chances of tracking them to ensure your business succeeds, helping you anticipate future needs, spending habits, profits and cash flow,” said Nick Kolbenschlag, CEO and co-founder of Crown Wealth Group. 

These are some of the key benefits of budget planning for your business:

• Budget planning helps inform business decisions. By creating a workable budget, you can track cash on hand, expenses and the revenue you need to keep your company growing. Knowing these numbers can also assist in setting smart financial and overall business goals.
• Budget planning helps you identify potential problems early. A business budget can illuminate small deviations that could turn into larger problems when left unchecked. “Proper budgeting … allows you to identify problems before they become major issues, giving you the ability to course-correct in real time,” Kolbenschlag told business.com.
• Budget planning allows you to attract investors. If you’re seeking financing, any investor will want assurance that your business is viable and will remain profitable in the future. A strong budget that highlights your current and projected numbers can provide that confidence.
• Budget planning prepares you for emergencies. Even the most financially healthy businesses can suffer from unexpected events or market downturns. By knowing how much money you need to keep your business running, you’ll also know how much you can save for future expenses.

What are the risks of not budget planning for your business?

Budgeting incorrectly or not at all poses several business risks:

• Failing to secure investment capital or loans
• Having insufficient funds for large expenditures or emergencies
• Needing to renege on commitments to clients or vendors due to financial constraints
• Struggling to finance an expansion, or expanding in an unsustainable manner

How do you create a budget for a business?

Budgets indicate how much money is spent on different aspects of the business, like payroll, advertising, supplies and other necessities. To create a budget, small business owners should analyze revenue and expenses for the entire calendar and fiscal year. Look at what you spent the previous year and project if you will spend the same, less or more moving forward. 

The goal of budget planning is to lay out all of the necessary components and brainstorm your goals, according to Shahid Hanif, founder of Shufti Pro. Hanif named some steps that the budgeting process should include: 

• Examine your revenue. Look backward at your existing business and find all of your revenue (income) sources.
• Subtract fixed costs. Subtract all of your fixed costs, like rent.
• Determine variable costs. Variable costs include the price of labor or raw materials.
• Set aside a contingency fund for unexpected costs. These expenses don’t arise only when it’s convenient.
• Create a profit and loss statement. Once you’ve collected the above information, put it together to create your profit and loss statement .
• Outline your forward-looking business budget. Whether you’re a new business owner or you’ve been doing this awhile, projecting what will happen to your business is educated guesswork. 

“Generally, fixed costs are contractual,” said Axel DeAngelis, founder of NameBounce. “An example of a fixed cost is rent. Unless your business pays percentage rent based on sales, the rent is generally contractual, with fixed increases throughout the life of the lease.” 

Business owners tend to have more control over variable expenses, which fluctuate based on sales. DeAngelis gave sales team commissions as an example: If your business sold 10,000 products, you would pay your sales team more in commissions than if you sold 100 products. 

Nonnecessities are expenses such as travel, entertainment or office perks. This category usually does not include monthly business expenses. 

As a part of your budgeting process, you should update your expenses monthly, which allows you to verify that your business is on target to maintain profitability.

What information do you need to create a budget for a business?

Budgeting for your business should include everything you will spend money on during the fiscal year. Failure to use a budget for your business is a missed opportunity to meet your financial goals. 

According to Ken Wentworth, founder of Mr. Biz Solutions, it’s crucial for business owners to analyze and include four key pieces of information when creating a business budget: 

• Revenue: For revenue, you must establish your annual goal and then use your historical actuals to determine how to accurately distribute your annual amount across the next 12 months.
• Cost of goods sold (COGS): Once you’ve established your monthly revenue, use those numbers to drive your COGS budget. Again, use your recent historical percentages to determine each COGS line. Determine the average percentage for each line based on monthly revenue projections.
• Overhead costs: Review your most recent year, and adjust as needed. For example, you can start with a baseline of last year’s actuals. From there, adjust reflected activity for the budget year. Eliminate nonrecurring expenses from the baseline year, make additions for known one-time expenses in the budget year, make reductions for known savings and so on.
• Margin review: To ensure your new budget will help you accomplish your goals, review your gross margin percentage and net margin percentage. What are your goals for those two measures? Make sure the new budget reflects those goals. For example, if you want to improve your gross margin from 52 percent to 55 percent, ensure your budget equates to a 55 percent gross margin. If not, tweak your COGS numbers to get there. This will set the budget baseline that you will use to measure your business’s performance. 

Budget planning tools

Having the right budget planning tools can save you valuable time and ensure that your calculations are accurate.

Accounting software

Accounting software is a simple solution for budget planning. The main benefit of using accounting software is that it already has the formulas you need. All that’s left is to add or transfer the numbers that are specific to your business. An optimal accounting software program is affordable, accessible and easy to integrate with other platforms your business uses. Here are some highly rated accounting software platforms to leverage in your budget planning.

• Intuit QuickBooks Online: QuickBooks is perfect for small businesses because it provides access to a live accountant and integrations with many popular platforms, including Salesforce and Bill. Learn more in our review of QuickBooks Online .
• FreshBooks: This accounting software provides invoice capabilities and double-entry accounting tools so you can create a chart of accounts and run new balance sheets. Learn more in our FreshBooks review .
• Oracle NetSuite: You can use NetSuite’s cash management feature to easily manage your cash flow and monitor your business’s bank accounts. There’s also a built-in budgeting and planning feature that makes forecasting and budgeting a breeze. Learn more in our review of Oracle NetSuite .
• Zoho Books: This software is designed specifically for microbusinesses that can run weekly, monthly and quarterly reports to track performance income and expenses. Learn more in our Zoho Books review .

Spreadsheets and formulas

A spreadsheet is one of the most common and versatile ways for businesses to budget. A spreadsheet can organize and catalog your expenses in charts and graphics. Many computers come with spreadsheet software , and there are also online programs, such as Quip, that integrate with other software, such as Salesforce. Spreadsheets use various formulas, depending on the report you’d like to create. You can make these formulas yourself or use premade templates, such as those found in Excel. 

If you haven’t used a spreadsheet to track expenses before, start by creating a monthly average formula. This gives you a better picture of your spending over the course of the year by creating annual projections. In the final formula, you’ll see where your spending and expenses will be at the end of the year if you continue with your current budget plan.

Cash flow statements

A cash flow statement is an often-neglected budget tool that is vital to long-term success. Although an annual budget statement shows the total amount of sales and retained debt, it doesn’t list individual transactions. Keeping track of these transactions could help your business avoid losing money. 

A cash flow statement gives you the exact time frame when a sale will be completed and when you’ve acquired debt. Keeping track of these details ensures that you maintain an accurate depiction of your credit and have enough cash to pay bills and expenses.

» Learn more: Cash Flow Calculator

What are the three basic budget categories?

A business budget should list all of your business’s current revenue and expenses. This budget should also include estimated or projected revenue and expenses. Brown listed three basic budget categories. 

• Operating budget: This is the annual budget that the company will follow to meet its financial goals. 
• Capital budget: This is a budget developed when the company plans to invest in fixed assets, like new machinery. 
• Cash budget: This is a budget developed to help company leaders estimate future cash needs and plan for emergencies and future investment opportunities. 

Business budget templates

Business budgeting is complicated. A business budget template can save you a lot of time and frustration. There are many business budget templates available, but paying attention to some key features can help you narrow your search.

First, look for a budget template that is easy to use. If you don’t interact with your budget regularly, it won’t be effective. Online templates allow you to access your budget anywhere and make edits. If the process is inconvenient, you’ll be tempted to do the budget once and forget about it.

Customization is also important, as each business has its own nuances to consider. Look for a template that allows you to add items and change formulas if necessary. 

To help you out, we’ve created a free, easy-to-use business budget template . This Excel spreadsheet includes templates for annual and monthly budgets, as well as monthly actuals and an overview of your finances. It also comes with a full resource page, including budget planning tips, Excel financial formulas and a guide to small business tax deductions. To get started, simply download or make a copy of the spreadsheet.

How is planning different from budgeting?

Business planning and business budgeting are closely related, but they have different goals. According to Hanif, planning is usually the first step in setting up a small business and continues to be used in business workflow. 

“Planning could be something simple, like building your daily agenda, or long-range enough to envision where you want to see your business in five or 10 years, whereas budgeting determines how existing financial resources are allocated,” Hanif explained. “Budgets are usually set by how previous money was spent and expected income.”

Creating a budget can be a difficult task, but once you do it, you’ll have a much better understanding of your business and how to plan for the profitability you’re seeking. If you update your monthly budget regularly, your annual budget will be more accurate and easier to create. When you know where your company stands financially, you can make better decisions to help your business achieve its goals.

Joshua Stowers contributed to this article. Source interviews were conducted for a previous version of this article.

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Business Plan Budget

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Did you know that even in a business plan, you must also have a business plan budget? If you are amazed by this discovery, don’t worry because you are not alone with that. When we hear the term business plan budget, it is not always something that you may encounter when some people are more accustomed to the term business plan. But just like making a business plan for your company or for your business, you must also have a business plan budget to control your finances. With that being said let’s take a look at these examples of a business plan budget below. See 33+ Business Plan Examples & Samples in PDF | MS Word | Pages | Google Docs .

10+ Business Plan Budget Examples

1. business plan budget template.

• Google Docs

2. Simple Business Plan Budget Template

• Google Sheets

3. Free Corporate Business Plan Budget Template

4. Business Plan Budget Worksheet

Size: 283 KB

5. Final Business Plan Budget

6. Business Plan and Budget

Size: 478 KB

7. Business Plan Budget in PDF

8. Strategic Business Plan Budget

Size: 96 KB

9. Business Plan Capital Budget

10. Multi-Year Business Plan and Budget Process

Size: 148 KB

11. Business Plan Budget Example

Size: 342 KB

What Is a Business Plan Budget?

What is a business plan budget? Why do you need a business plan budget? Just as a business plan is a road map to guiding you to the right path, so is a business plan budget . A business plan budget in a nutshell is a financial roadmap for a business plan budget. The only difference is that a business plan budget is a road map that navigates you to the right spending path to help your business. This is based mainly on your income, budgets and expenses. A business plan budget is a kind of budget plan that focuses mainly on your business plan. The budget plan for your business is important and a part of the business plan. The purpose of this business plan budget is to help you plan out your activities that help you reach your financial goals. See  26+ Business Plan Examples .

How to Make a Business Plan Budget

You have a business you want to make it happen. You have a business plan all set up. But you may lack something, like a business plan budget. How to make a business plan budget? What do you think should be in a business plan budget? To get an idea of what a business plan budget may look like, let’s take a look at the steps to making a business plan budget. See  6+ Small Business Budget Examples .

1. Assess and Analyze the Entire Cost

The first thing you can do is to assess and to analyze the entire cost for your business plan budget. We do know for a fact that a business plan budget will not fully work if you do not have the exact assessment of how much you are going to need. So as you start to do this, assess how much the entire cost will be. Analyze if it is worth the risk or if you can find a better solution around it. See  15+ Estimate Examples [ Cost, Budget, Project ] .

2. List Down Your the Resources

Next, list down all the resources you will be needing for your business plan budget. This means the materials, the quantity and their costs. As much as possible be sure to add in the estimated cost or the actual cost. You cannot move to the next step without listing everything you will need down.

3. Make Some Estimates

Third, from the list you made in step two, you must also be adding the amount and the entire costs. This is the part where you are going to be making your estimates. In order to get the right estimates, you must be very meticulous with this part of the step. To help with that, you will need to have an estimate sheet . See estimate sheet examples .

4. Set Some Budget Goals

Lastly, set some budget goals to complete the entire business plan budget. Your budget goals must also include your total expenses, income and the overall budget.

What is a business plan budget?

A business plan budget in a nutshell is a financial roadmap for a business plan budget. The only difference is that a business plan budget is a road map that navigates you to the right spending path to help your business. This is based mainly on your income, budgets and expenses.

Why is there a need for a business plan budget?

A business plan budget is a kind of budget plan that focuses mainly on your business plan. The budget plan for your business is important and a part of the business plan. The purpose of this business plan budget is to help you plan out your activities that help you reach your financial goals.

How do you make a business plan budget?

• Assess and Analyze the Entire Cost
• List Down Your the Resources
• Make Some Estimates
• Set Some Budget Goals

When it comes to budget planning, you must also add in a business plan budget. Moving forward, it is not just something you can think about, but it is also something worth doing when you plan on making your business plan. Make a business budget as well.

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TechBullion

7 tips to make writing a business plan easier.

Writing a business plan is one of the most valuable things you can do as a business owner. But it can also be one of the most challenging if you’re doing it for the first time.

To help you get right to the value of having a complete business plan, here are seven simple tips that will make business plan writing easier.

1. Understand What to Include in Your Business Plan

Take the time to understand the broad structure of a business plan and what information should be included in each section. This helps you avoid writing aimlessly and gives you a checklist to mark off as you go.

To get started, here is a brief overview of the most common sections of a business plan :

• Executive Summary : Summary of the full business plan, typically covering the problem, solution, target market, team, and financial highlights.
• Products and Services : Description of what you offer, the problem it solves, and any progress or traction.
• Market Analysis : Research on your target market, its size, segments, and trends.
• Competition : Analysis of competitors and how your business compares.
• Marketing and Sales : Strategies for reaching and selling to customers.
• Operations : Overview of your operations including technology, equipment, and facilities.
• Milestones and Metrics : Key goals and performance indicators.
• Company Overview and Team : Organizational structure, company history, and team bios.
• Financial Plan : Sales, expense, and cash flow forecasts along with standard financial statements like your profit and loss, cash flow statement, and balance sheet.
• Appendix : Additional information, such as detailed financial statements, resumes, and other supporting documents.

This list is not exhaustive, so, if you need additional details, look into lengthier business plan outlines or  just go on to step two and three in this guide.

2. Consider Starting With a One-Page Business Plan

You don’t necessarily need to write a traditional business plan. If you’re exploring an idea or planning to use it as an internal tool—then a one-page business plan may be a better option.

A one-page business plan is basically a condensed version of a traditional business plan that outlines your business’s key points in a single page. It’s faster and easier to create, simpler to edit and adjust as your business evolves, and it can always be expanded into a more detailed plan later on.

And even though it’s on one page, it still works as a fully functioning business plan. You just get the benefit of starting small, focusing on the essentials.

3. Download a Business Plan Template

Using a business plan template can provide additional guidance and structure to the planning process. With the right template, you’ll get step-by-step instruction, simple fill-in-the-blank sections, and potentially even tips from entrepreneurs or planning experts.

There are plenty of free business plan templates out there, but the best will be written by experts, recently updated, and available in a format that will meet the expectations of lenders and investors. Additionally, just be sure it’s available on software like Microsoft Word or Google Docs so you can get right into using it.

4. Review Business Plan Examples

Sometimes the best thing you can do is to see what the end result can look like. So, when writing a business plan you should explore and review a handful of business plans examples. Ideally, business plan examples are created by professionals or are real-world samples from existing businesses like yoga studios .

If you can, find a sample business plan that’s from the same industry as your own business. Pay attention to the structure, how the plan is written, and what information is unique to your specific industry. You should also take time to flag anything that you don’t think is done well as something to avoid in your own plan.

Keep in mind, you should not copy and paste these examples. Use them to inspire your plan and don’t replicate it.

5. Prioritize the Sections You Already Know

There may be a preferred order for structuring your business plan, but that doesn’t mean you have to write it that way. Instead of going from beginning to end, start with the sections that you already have ideas for and know best.

This will help you avoid just staring at a blank page and actually get information down. You may even find that it makes writing other sections easier as you start thinking more and more specifically about your business.

6. Set a Time Limit

Do not spend hours at a time writing your business plan. You’ll get burnt out, make mistakes, and likely end up seriously disliking the whole process.

To avoid this, set a time limit for your writing to be between 30-minutes and an hour. This is just enough time to actually write and work through sections while making it an easy time investment to fit around your busy schedule.

Keep in mind, this may mean you don’t finish your business plan. That’s totally fine and potentially beneficial. Step away, schedule a follow up writing session, and get back to it. It may end up taking two, three, maybe even four times but you’ll still end up with a complete business plan.

7. Have Someone Review Your Business Plan

Lastly, don’t do this writing process solo. Get someone you trust, like a friend, family member, or mentor, to review your plan as you go. Have them read it and provide feedback like:

• Do you understand how my business works?
• Is the business plan clear and easy to read?
• Are there areas that are confusing, make jumps in logic, or need more explanation?

Take their feedback and apply it to your plan. If you do this before completing the plan, you may end up saving time and catch any issues before they’re prevalent throughout the entire document. If you’re concerned about the quality or not getting enough feedback, consider hiring a professional plan writer or reviewer to take a look instead.

Writing a Business Plan Doesn’t Have to Be Difficult

The hardest part about writing a business plan is getting started. But by developing a framework, knowing what you’re getting into, and finding the right support it can be a lean and effective process.

So, take one or all of these tips and start writing your business plan. You’ll be happy you did.

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