How to Create a Business Budget for Your Small Business

Let’s take a look at how to create a small business budget in five simple, straightforward steps. Before finalising your budget, make sure to include some contingency money. You never know when cash is suddenly needed, so it’s always useful to have a little pot set aside for a rainy day. This fund can make sure you’re protected when you most need it.

Businesses can see exactly how much money is coming in and what it is being spent on. This type of analysis allows business owners make decisions that will improve profitability in the long run. Having a budget in place helps small business owners ensure that they have enough money to cover both short-term and long-term expenses.

Outline your forward-looking business budget

Examples of variable costs include cost of goods sold and commissions for labor. When creating a budget for these payments, it is important to factor in both current business costs what is a product and future needs such as interest rate increases. Many businesses overlook this expense and end up struggling with cash flow in the long run due to heavy debt repayment commitments.

When creating custom ordered goods, factor in labor time and cost of operations and materials. Jon Morgan is the founder of two successful e-commerce and SaaS businesses. He’s passionate about sharing what he has learned from working with business owners through Venture Smarter. LocaliQ’s Complete Guide to Marketing Budgets not only provides you with a marketing budget template, but also walks you through the marketing budget basics.

Every business needs a budget

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. Variable expenses change based on what your business produces and sells. These expenses fluctuate more than fixed expenses and often tie directly into the cost of goods sold. For example, while a salary you pay an employee would fall under fixed expenses, the commissions you pay a salesperson would fall under variable costs.

A proper budget allows you to view the business’ expected revenue, expenses, and cash needs for current and future months, quarters, and calendar or fiscal years. 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. It’s a good idea to contact any suppliers you’d have to work with before you continue on.

Forecasting Revenue

Every good budget operates from the same framework but you’ll need to think about the unique aspects of your industry and business type to create the right budget for you. To make it even easier, link the totals on the summary page to the original sons and your other budget tabs. This way when you update any figures, your budget someone gets updated at the same time so you have your very own budget calculator.

The profit and loss statement subtracts your costs from your revenue. It takes all of the funds generated and removes the expenses already spent such as wages, raw materials, office space and utilities. Small businesses don’t always have a budget but experience tells us that they should. Without a comprehensive financial budget, the best-case scenario is that it’ll take you a little longer to grow. The worst case is that your business could face serious financial problems.