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Building a Business Budget in 5 Easy Steps

Building a Business Budget in 5 Easy Steps

There are many considerations you need to take into account when you start your business. Things such as marketing, finding new clients, building websites, and possibly finding a brick and mortar location. But the most fundamental component that you need to give your utmost attention to is developing a good, solid business budget.

What exactly is a business budget?

A business budget is an overview of your business’s finances. It helps you define your current state of finances as well as your long-term financial goals. Having this tool in place is imperative. It helps you make appropriate and sound financial decisions. It identifies where you need to cut spending and/or where you can grow revenue. Crucially, it is a required document if you are planning to apply for a business loan or raise funding from investors. 

Here, we have outlined a few steps you need to take to start building your budget.

1. Document Your Income Sources

Income is easy to define but not always easy to predict. It is money that is received, especially on a regular basis. For a small business, this would entail money received for sales of products and services. When you think about budgeting for income make sure you think about how you plan to grow and which markets you will use. Also, consider whether the income is going to be generated based on one-time events or recurring (subscription-based).  Be sure to account for any seasonality in your business so you can plan everything else accordingly.  Income is the foundation of your business budget and all other fixed and variable spending you will have over the budgeted period is dependent on what you think your income will be. 

2. Nail Down Fixed Costs

Now, you need to determine what your fixed costs are. Fixed costs are expenses that you incur regularly and stay the same from month-to-month such as rent, certain utilities such as phone and internet, website hosting and certain payroll. In general, these expenses are predictable as they do not change.

3. Determine Your Variable Expenses

Variable expenses are just what they sound like. They are expenses that do not have a fixed price such as usage-based utilities (electricity), shipping costs, sales commissions, and travel costs. By definition, these expenses change from month-to-month. They are predictable in the sense that you will always have to pay them, but are somewhat unpredictable in their amount.

4. Anticipate Singular/One-Time Expenses

Unlike fixed or variable expenses, one-time expenses are expenses that only happen singularly or are a one-time expense, such as business courses and seminars, repairing equipment, hiring an IT person to fix an issue. This subset is most often overlooked, but very important to consider. These expenses are not always easy to predict, but you need to plan for them, and are vital to building a healthy and useful business budget.

5. Putting it All Together

Now, you need to put it all together to get a comprehensive view of your financial standing for the month. You need to add up your income and then add up your expenses. Compare your “cash flow in” compared to your “cash flow out” to determine your overall profitability.

Having a well thought out business budget provides you with a much clearer view of your profitability each month. It helps guide you in areas where you can lower your spending and expenses. It also helps you determine where you can build your income. This allows you to make appropriate financial decisions moving forward.
A detailed, workable, and accurate business budget is an absolute necessity if you want your business to be able to sustain, succeed and thrive in our current business environment.

Accunovation is a technology-driven, process-focused, and people-powered accounting firm and can help you in setting up a workable and useful business budget. We are highly skilled and are ready and willing to help you ensure success in your business during these stressful times. Please feel free to contact us for more information.