You could be raking it in and still not have enough money on hand to pay your suppliers. 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. 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. 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. When budgeting, just assume that your business will have at least one major unexpected expense during the year.

How Much Should a Small Business Budget Be?

That organization might benefit from focusing efforts on better controlling expenses during the budgeting process. Whether you’re looking to optimize a small marketing budget or get a firm grasp on all of your expenses, there’s something in this list of small business marketing budget templates for everyone. For your budget to be meaningful, you need to maintain it on a regular basis. At a minimum, do a monthly analysis to see if you have more revenue coming in than costs going out.

A How-To Guide for Creating a Business Budget

• For example, if you run a startup, you may want to include data on the total cost of getting your business up and running, as well as the amounts and sources of investor funding.
• A contingency fund for emergencies will safeguard your business when these unexpected costs arise.
• These are the costs that stay relatively stable month to month, and you can usually predict them pretty accurately.
• Then, the software calculates figures like gross profit, net operating income and net income for you.
• 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.

On average, B2B companies spend between 2% and 5% of their total revenue on marketing, while B2C companies spend between 5% and 10%. Your business goals, industry, and customers will determine your marketing budget. Okay, though, what do you do if you subtract your expenses from your income—and you’ve got money left over? You’ll end up mindlessly spending it on coffees, convenience store candy, and those one-click deals of the day. Get those dollars to work by putting any “extra” money toward your current money goal. Make a budget category for each of these and create budget lines underneath for your specific expenses.

• After reviewing your P&L statement, you’ll have a better idea of where you’re spending your money—and if you’re spending responsibly.
• Use your P&L statements to go back in time and look at financial performance year over year.
• At Mowery & Schoenfeld, we specialize in helping businesses develop robust financial strategies to achieve their financial goals.
• Then, next to each category, list the total amount you’ve budgeted.

An Important Financial Statement

Planning for growth is important when calculating budget revenue, but you’ll have to account for added expenses as well. Your computer crashes and needs to be repaired, or worse, replaced. 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. 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. Budgeting for any business involves adding up income, subtracting expenses, and identifying where to spend and save money. Because different industries require different strategies, we’ve created a list of things to consider for specific small business types.

If times are tight and money must be found somewhere in order to pay a crucial bill, advertise, or otherwise capitalize on an opportunity, consider cost-cutting. Specifically, take a look at items that can be controlled to a large degree. Another tip is to wait to make purchases until the start of a new billing cycle or to take full advantage of payment terms offered by suppliers and any creditors. Some thoughtful maneuvering here could provide the business owner with much-needed breathing and expansion room.

Create a budget income statement

So it makes sense that the biggest cash outflow is for inventory. Equity is the difference between assets and liabilities—the how to create a budget for a business true value of your business. The $10,000 net income in the income statement increases equity in the year-end balance sheet.

Not all costs are fixed, so you may need to do a little digging to determine some of your expenses. Calculate how much the company spent on hourly employees, variable utilities, and break room snacks and business lunches. Larger businesses tend to make budgets annually, but for a small business, especially at first, it is a good idea to break down your budget monthly.

• Many of your business expenses will be regular expenses that you pay for each month, whether they’re fixed or variable costs.
• Content marketing includes blog posts, podcasts, and video marketing.
• Also, some lower-level managers can use this opportunity to insert some budgetary slack so that they look good during performance.
• Your estimated revenue is a calculated guess of how much money your goods or services will make this year.
• Read our small business guide to managerial accounting and learn how managerial accounting concepts can be applied in a small business setup.
• In reality, the payments will be uneven, but the cash inflows and outflows can be difficult to predict by month.

For this reason, the ability to prepare a budget is one of the most crucial skills for any business leader—whether a current or aspiring entrepreneur, executive, functional lead, or manager. Finding a deficit in your small business budget can be alarming, but there are several strategies you can employ to handle this situation. The offers that appear on this site are from companies that compensate us. But this compensation does not influence the information we publish, or the reviews that you see on this site.

How to Create a Business Budget: 8 Simple Steps

If you end up with a positive number, you can expect to make a profit. 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.