How to Create A Budget for Your Small Business
Starting a small business isn’t always easy. Starting a solid plan for your business early on is key to your success, and that includes a dynamic budget. Setting up your budgeting plan might seem like a lot of work, but if you break your finances down into a few easy to understand areas, it should become a lot clearer.
First, add up all of your income that will go toward the business. Then, determine regular costs to your business that will be recurring, but steady. After that, make a new category for one-time costs and recurring costs that could vary. Now, you’ve got the framework for a budget. You should try to overestimate costs when possible and make sure you’re always saving for the future. Budgeting doesn’t have to be scary. Breaking your budget up into a few categories will simplify the process and make things a lot easier on you.
Table of Contents
Evaluate Your Sources of Income
Any source of money that you’d like to go toward your business should be calculated and tracked as a steady source of income. You should always feel confident about the amount of money that can be spent on your business at any given time. If something breaks and needs to be fixed, you’ll want to know whether or not you have the income to cover the cost. If employees have to work overtime due to a rush in customers, you have to know whether you can pay them accordingly.
You’ll need at least a preliminary list of projected sources and amounts of income as part of your small business loan application. Once you start to actually do business, that income document will need an upgrade to reflect real numbers. Start a balance sheet that shows steady sources of income, when they come in, and what amounts you can expect. If the number varies a bit, it’s always a good idea, for future projections, to underestimate income and overestimate costs. This way, you always have some leeway when it comes to your expenses. If something is cutting it a little bit too close for comfort, you’ll know and can make the executive decision to hold off for a little while.
Determine Fixed and Regular Expenses
Once you have all of your income cataloged, and projected for future months, you can start adding up regular expenses that you know are always going to need paying. Again, employee pay, common repairs and maintenance, if you pay for regular travel (including gas, flights, hotels etc.). Anything that you know comes out of the business wallet on a recurring basis should be preemptively subtracted from your projected income.
If at all possible, you should also try to plan for expected expenses as much as possible, like travel and maintenance. If you know something needs to happen every few weeks or months, plan an exact date for it. You can then take control over the date that the money will be subtracted from your budget, which will be a date that is most convenient for you. If you try to plan in this way, you will have to stretch your money less and you won’t be surprised when it’s that time again to pay for predictable expenses.
Plan Ahead for Varying Expenses
After both of those areas are taken care of, you’ll know what improvements or more flexible expenses you can plan for the future. Buying new equipment or even the differing costs of product that come in on the regular can be assessed as the circumstance presents itself. Since you’ve been working on your balance sheet, you’ll already know how much income you have left over after your regular costs have been subtracted. You can then decide when the right time is for upgrades or if some product purchase should be spread out over a few months in order to keep your budget in a comfortable place.
Overestimate Expenses & Save
As I mentioned before, it’s always a smart move to overestimate expenses and underestimate income. If you plan this way, you can usually realistically expect to be left with more money at the end of the month instead of wondering how you’re going to make it through the month.
This also plays a very important part in deciding when it’s time to go ahead with some of those upgrades. When you have additional funds left over, which you always should, those funds can roll over into a savings account (or multiple savings accounts). Whatever way works best for you to compartmentalize the different savings that you have and their uses, write that down in your balance sheet in a separate column to keep track of.
For example, you might want to start saving for an incentive budget for your employees. Save for an employee celebration day, monthly award items, or whatever else might keep your employees happy. Separately, you’ll likely want to start saving for those upgrades we talked about. New computers, desks, and equipment are often lofty purchases that can drain your budget quickly. Start saving now so that you can spread those purchases out and don’t feel drained when it becomes absolutely necessary to upgrade some things.
Not to mention, you might decide that you might want to dive into some long-term investments, like a bigger workspace or a store front property. These types of things may take some continuous saving and planning before you can take that leap, but if you budget out your finances in the ways we previously talked about, you’ll know when your business’ growth has hit a new level of income that can satisfy your desire for upgrading.
Successfully budgeting for small businesses, and any business for that matter, is all about planning ahead. Unexpected financial hardships can crush a business, especially a startup. Starting a budget sheet now can help you track any financial trends that you know are there and can give you insight on ones that might have been hiding just below the surface. A business that is in tune with their budget is one that can easily plan growth opportunities for the future.
For more tips and guides, visit our small business resource center.
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Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.
This post was updated December 7, 2017. It was originally published October 12, 2017.