How to Create a Small Business Budget in 5 Steps
Businesses run on money, so you’d think that managing every dollar would be natural for business owners. Unfortunately, though, new business owners often overlook the crucial step of making a business budget before they launch.
If your business runs out of money, that’s it. Sure, you can take out a loan or open a credit card to survive for a few more months, but it’ll come crashing down eventually if you’re not watching what you spend.
Even businesses that are doing well enough to get by without a budget will run into problems. They’ll be less efficient than they could be if they watched their financial planning, and their bookkeeping will inevitably suffer.
Whether you’re planning to launch a small business or you’re a seasoned professional, small business budgeting rarely sounds fun. The good news is that you can create a budget quickly. You just need to follow tested steps so you can secure your bank account and improve your business's chances of success.
Why is it Important to Have a Budget?
Following a small business budget is non-negotiable, just as many people believe should be the case with a personal budget. Regardless of how you manage your money away from work, a business budget is essential because it increases financial responsibility.
You'll know exactly how much you're spending, how much you can spend, how much you're making, and if there's anywhere that you can cut back now or in the future.
Most business budgeting requires you to track elements such as:
Once your company budget is complete, you'll have a standard business budget template to follow. Then you can use it to remake your business budget based on current information every quarter or every other quarter.
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Added Benefits of Business Budget Planning
As you make your budget, you’ll be prompted to create spending strategies and transform your business. Given the state of small businesses, other simple steps that can change your business include:
Using a Trusted Credit Card Processing System
Additionally, once you know how to prepare a budget for a company, you can use those skills for any business you’re involved with in the future. Budgeting for business expenses is a skill that’s useful across the board.
A Note About Credit Cards
Part of making a sound budget is tracking your income, especially if you use a virtual terminal or a card reader at your POS. If you can track every sale and each income source, you'll have an easier time knowing what you have to spend and save.
How to Create a Business Budget
It’s time to open an excel sheet, notebook, or new document and start recording your income and expenses.
Step 1: Track and Increase Income Sources
Before you know how much you can spend, you need to know how much money you make every month. The following sources should get you started:
Track anything that generates income with the average amount it provides per month, what it has provided in the past, and what you expect it to offer in the future. You can map this out for anywhere from three months to three years.
You can make this step much more manageable with reliable invoice software and a way to accept credit card payments.
Once you have your information tracked, take a moment to brainstorm ways to increase your income. A budget can do more than give you a picture of your finances. It can help you improve them.
Step 2: Record and Lower Fixed Expenses
Fixed costs are recurring expenses that charge the same amount to your account every month or year. Tracking these is one of the most accessible parts of making your budget. The following sources should get you started:
Government and Bank Fees
Apps and SaaS Fees
Review your bank statements and bookkeeping reports to spot your fixed bills and record the amount they cost every month.
Next, ask yourself if you can lower any of these fees. Can you negotiate a lower insurance bill? Opt for more affordable website hosting? Change to a more affordable cell phone plan? Every area you lower will benefit your business.
Step 3: Record and Lower Variable Costs
Variable expenses are items that don’t come with a fixed price tag. These might be different every month, absent some months, more expensive on others. You want to know how much you’re spending, on average. The following sources should get you started:
Other Marketing Costs
Travel & Events
Reviewing your bank statements and bookkeeping reports will make this process easier, but it can be time-consuming to calculate averages for each item. Be patient and thorough.
Next, ask yourself if you can lower any of these expenses. Should you rethink your marketing budget? Switch printing services? Change transportation? Do you need to put more money into anything?
Step 4: Predict One-Time Expenses
Factoring in one-time expenses is one of the perks of keeping a business budget. You can budget for different upcoming obligations to make them less of a financial burden.
While you can’t plan for the laptop that crashes suddenly, you can predict to get a good idea of what you’ll need to spend. The following expenses should get you started:
Other Office Supplies
Step 5: Put it All Together
This step is where most people falter when they're creating a budget, but it’s the most crucial step. Make or download a budget template and plug all of your information in.
If you’re spending too much, now’s your time to put new limits on expenses and fix it. If you have untapped resources, now’s the time to increase your savings, marketing budget, salaries, or another area that could use a boost.
All that’s left to do is keep this information up-to-date and apply it to your business’s financial management. Schedule regular check-ins to make sure you don’t forget to follow your business budget and keep your finances in order.
Creating a business budget can transform how your company handles money. It can open new doors and allow you to eliminate financial drains on your operation. And once you’re experienced, it doesn’t take much time to keep updated.
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Want to keep reading about small business success? Check out these posts:
Credit Card Processing Fees: A Guide for Small Business Owners
What a Unique Selling Proposition Is & How to Create One (With EXAMPLES)