6 Steps to Create a Small Business Budget +Templates

Just make sure you’re creating something that you’ll actually use. 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. 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.

• It needs to be kept up to date and as accurate as possible for it to be of any use.
• You may always need to pay some variable costs, like utility bills.
• Your operating budget outlines the funds your company needs to operate efficiently.
• Depending on your role within a company, your approach to budget management may vary.

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. Here is a small business budget template for excel that you can play around with. The template has everything sorted with automatic calculations of variances for expenses and income. You can also perform different analyzes on your financial data.

More businesses are shifting to accounting software for making budgets, tracking expenses, recording revenues, and doing financial analysis. The percentage of businesses relying on budget software has grown to 43% in the US alone. You can also switch to automated budgeting by choosing from different small business budget software for free.

What Is a Business Budget?

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. 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.

Either you’re looking for a marketing budget or budget planner to apply for a loan, you can get a template for it. If you’re an Excel user, you have a lot of choices for budget templates. However, choosing one that caters to your business needs and is simple to understand is quite a job.

Step 1: Track and Increase Income Sources

You’ll be in a better position to know if you can afford it or not. This free budget template from Monday will help your team estimate costs before undertaking a project. You can easily spot if you’re going over budget midway through a project so you can adjust. The Business budget follows a set template, which you can fill in with estimated revenues, plus any recurring or expected business expenses. In your spreadsheet, create a summary page with a row for each of the budget categories above. Then, next to each category, list the total amount you’ve budgeted.

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. Because business isn’t consistent every month, a budget gives you a good view of both past and present data to predict future cash flow. Forecasting this way helps you spot annual trends and to see how much money you need to get through the slow months, and look for opportunities to cut costs to offset the slow season. Use your slow season to plan for the following year, negotiate with vendors, and engage with customers to build loyalty.

MoneyManagerEX

However, you may choose to handle it yourself or restrict input to senior management. Master budgets are usually presented in an either monthly or quarterly format, displaying expenses over the fiscal year. Variable expenses are those your business incurs, which vary over time depending on several factors, including sales activities. Your shipping and distribution costs, for example, are likely to be higher during a period when you sell more product than one when you sell less product. Likewise, utilities such as water, gas, and electricity will be higher during periods of increased use.

Many business owners are tempted to save every penny they earn for their budget, especially in the beginning. And while it’s important to have backup finances, your budget should allow plenty of room for you to be paid. The real advantage of setting a budget is that it helps you make strategic business decisions. Try a variety of different scenarios and see what numbers emerge. A budget will also give you a much better idea of what your cash flow will look like. This will help you avoid running out of money and getting into a tight spot with creditors.

Every section is sub-categorized according to the types of expenses and revenues. You can check the step-by-step guide to create a small business budget to know what should be included in a small business budget. Capterra’s small business budget template is easy to use and employs all of the components we defined above, like fixed costs, variable costs, revenue, and profit. All a budget does is predict income and expenses so you’ll know where you’re at with profits. Just like how you start your personal budget with your income, you’ll start your business budget with business income (also called revenue). Your revenue is the money you earn in exchange for your products or services.

Your cash flow

That means creating a profit and loss (P&L) or income statement, like the one shown below. Discretionary expenses are also considered variable expenses because while they are nice to have, they’re not essential for your business. These include things like education, consulting, etc., which might help increase profitability. Most organizations also prepare what’s known as an “actual budget” or “actual report” to compare estimates against reality following the period covered by the budget. This allows an organization to understand where it went wrong in the budgeting process and adjust estimates moving forward.

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. 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.

After tallying up your fixed costs, you should now think about variable expenses. As the name implies, these are recurring costs, but the amount isn’t fixed and can fluctuate month to month, depending on many factors. So, you know the importance of making a neat business financial plan that touches all edges and gets excellent work done by everyone. While you gird your loins with the best financial strategies, remember that it’s never too late to start your small business financial management. Achieve your financial goals for 2023 with Volopay alongside. In the previous section, the importance of expenses and how to streamline them has been greatly emphasized.

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. Although you might be tempted to spend surplus income on variable expenses, it’s smart to establish an emergency fund instead, if possible.

Cash Flow Budget

It can be difficult at first to let someone else have the power to spend the company’s money. Delegating will eliminate the bottleneck of forcing every purchase decision past the owner’s desk. Having budget management training tools available can help managers continue to improve their skills. The goal of your cash budget is to ensure there is enough money coming in to cover any money that goes out.

Estimating your cash flows is important in creating a small business budget because cash is the lifeblood of every business. Once you’ve logged all income from different sources, estimate your fixed costs. Fixed costs are the business costs that remain the same regardless of how much sales you’ve made. Designing a successful budget starts with understanding how detailed it’s worth making this particular version. You’ll most likely want to break budgets down at least to the department level.

Your estimated revenue is the amount you expect to make from the sale of your goods or services. It’s the cash that comes in the door regardless of what you spent to get there. You can base it on last year’s number, or if you’re a start-up, base it on industry averages. You assign every dollar to a job based on what you think is the best way to use your business funds. Then, you’ll go back and compare your actual spending to the plan to see how well you did. A budget is a detailed plan that outlines where you’ll spend your money on a monthly or annual basis.

Ecommerce businesses

That means you need to count every penny that comes in or goes out of your company! When you run your business on commonsense financial principles, you’re setting yourself up to be like the little pig who built his house out of bricks, not hay or sticks. Before you compile your budget, it’s important to have a firm understanding of the goals your organization is working toward in the period covered by it. By understanding those goals, you can prepare a budget that aligns with and facilitates them.

So if you find you need a loan for something, you have everything you need to go and apply for one right away. There are just three broad sets of figures to get your head around and they’re really simple. It will prepare you and your business in case one of your pieces of equipment breaks down, or you need to replace it. Of course, you could always take out a loan, but it wouldn’t hurt to have more options. Murphy’s law states, “Anything that can go wrong will go wrong.” That’s why you should set aside a contingency fund for your business.

Set your system up to categorize these expenses appropriately so you have an accurate view of each type of expense. Variable costs vary based on your sales activity (e.g., commissions). Fixed costs stay the same, no matter what happens to your sales. Fixed costs are the expenses you must pay to run your business (e.g., rent). On the other hand, if you have expenses that constantly change, use a flexible budget.