How to Create a Small Business Budget

How to Create a Small Business Budget

You’re running a successful small business, but things aren’t ideal. Everything is ticking along nicely, though, in an ideal world, you’d like to see greater profit margins. The answer to earning more profit from your small business venture could be a better business budget.

Every successful business needs a budget for knowledge and insight into costly waste and how to make bigger profit margins faster.

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Steps to Making a Small Business Budget

If you’re wondering where to start in compiling a budget for your business, you’re in the right place. Check out these steps for creating a budget for your business today.

Figure Out How Much Revenue Your Business is Making

It’s virtually impossible to budget for a small business if you haven’t any clue how much the venture is earning you on a regular basis. The first step to small business budgeting then is to identify this amount or at least a monthly average.

If you’re already running a small business, you can find out how much the business is making by looking at your sales figures.

Break the Revenue Up into Recurring Income and Expected Income

When creating a small business budget, you should break the revenue the company is pulling in into two separate categories — recurring income and expected income.

Recurring income is the regular and reliable revenue the business generates from the likes of contract work and client retainers.

Expected income, which is important when compiling a small business budget, is a prediction of future earnings. Expected income is essentially a forecast of what your small business is likely to earn is three, six or even 12 months from now.

Determine What Your Fixed Costs/Regular Expenses Are

What expenses do you have to pay for your business each month? It might be the salary of a small team or employees, costs to rent your business premises, IT costs, travel expenses etc. If you’re a start-up, you’re probably having to fork out for a number of unavoidable start-up expenses, such as technology, administration and marketing costs.

When creating a small business budget, take a look at your accounts and statements and figure out what your fixed business costs are and the total amount these unavoidable expenses cost you each month.

Calculate Your Variable Expenses

As well as fixed costs, most small businesses have variable costs they have to pay out, which don’t have a fixed price tag and are more haphazard than regular expenses.

One example of a variable cost might be outsourcing work and using a freelancer to manage projects that may come in — thus the  cost may change frequently from month to month.

Many variable expenses can be scaled up or down depending on how your business is doing. For example, if your business performed better one month than you had forecast, you could use the additional profit to increase your variable expenditure, subsequently helping you grow at a quicker rate and make greater profit in the long-term.

Determine What Your One-Time Spends Are

All businesses have one-time spends they can’t avoid. It might be a new computer to replace one that’s crashed, a new company vehicle or new machinery for your operations. No matter what your one-time spends are, by creating a small business budget, you’ll be able to factor in such expenditures. Without doing so, these expenses can come as a nasty surprise and be a huge financial blow to a small business struggling with cash flow.

Document, Document, Document

Once you know exactly how much the business is pulling in, how much you’re spending and on what, put the figures down on a spreadsheet. Make separate columns for your income sources. These could include regular costs such as utilities, office rent and salaries. It could also include variable expenses such as commissions, raw materials, contractor wages and one-time spends. It should also include hardware, software, furniture and office supplies.

Look Things Over with an Eye to Efficiency

With all the payments and expenses put down on a spreadsheet, you can see if you have more revenue coming in compared to costs going out. This will give you a clearer idea of what profits your business is making. Similarly, you can see, at a glance, if your business is actually suffering a loss. A short-term, one-off loss, might be manageable, but long-term losses are certainly not sustainable.

Use your budget to see what cutbacks you can make on expenditures, whether they are fixed costs, variable expenses or one-off payments. Utilitize your budget to fine tune your small business and help turn it into a significantly more profitable venture.

Photo via Shutterstock


Gabrielle Pickard-Whitehead Gabrielle Pickard-Whitehead is a professional freelance writer and journalist based in the United Kingdom. Since 2006, Gabrielle has been writing articles, blogs and news pieces for a diverse range of publications and sites. You can read "Gabrielle’s blog here.".

2 Reactions
  1. And one of the big benefits of diligently following this process is that you quickly identify any spend that could be trimmed or optimized.

  2. It is all about the basic financial statements – the income statement and the balance sheet. Then, you can also compute breakeven if you are still starting out.

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