How to Create a Business Budget for Your Small Business

Nov 2

Introduction

A budget is a plan for how you will allocate your money. It helps you make decisions about how to spend and save. By creating a budget for your small business, you can ensure that it's operating efficiently and effectively.

A good way to start is by forecasting how much income your business will receive from customers over the next few months or years. You can then use this information as the basis of your expense budget and project spending needs. In addition, you'll want to consider any assets or liabilities on hand—like cash reserves, inventory, and equipment loans—in order to get an accurate picture of what resources are available within your company today versus what may be needed down the road when making future plans for growth or expansion efforts…all without exceeding those resources' limits!

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Start with a sales forecast.

Your sales forecast is the most important part of your budget. It’s the foundation of your financial plan and a critical piece for measuring success, identifying risks and opportunities, and making decisions about any additional resources needed to meet goals.

A sales forecast can be based on actual historical data or projected based on expected changes in market trends or customer behavior. For example, if you're planning to move into another industry with a slightly more affluent customer base, it might be appropriate to base your sales forecast on this assumption rather than using last year’s figures as a guide. This way, you'll have an accurate prediction of how much money will roll in over the next 12 months (or however long you want to measure).

Create an expense budget.

Define budget. A budget is an estimate of how much money you think your business will earn and spend over a period of time (e.g., one year).
Create a spreadsheet or use a budget planner to keep track of your spending and income.
Calculate your profit margin. The profit margin measures how much profit is generated on each dollar earned in sales, which can then be compared to other companies margins.
Use a template to help create the list of the monthly expenses for your small business financial plan by listing out all the categories that make up this section (e.g., office supplies, utilities, travel expenses), along with any other details specific to that particular category; for example, office supplies include pens/pencils/paper clips/$1 per month/$12 total or gasoline for driving customers around town-$120 per month/$1,200 total).

Incorporate your assets and liabilities.

Assets are things you own, such as cash, accounts receivable, and inventory. Liabilities include accounts payable, loans, and leases. The balance sheet is a snapshot of your business at a point in time, illustrating what you own (assets) versus what you owe (liabilities).

Use your budget to track progress.

It's important to keep track of how you're doing financially. You can use a small business budget to help you do this by tracking your expenses, income, assets, and liabilities (what you owe versus what people owe you).

Update your budget regularly.

Once you've set up your budget, it's important to update it regularly.

Make sure to update your budget at the beginning of each month.
Update your budget before you start a new month.
Update your budget before the end of each month (so you can use the new numbers for next month).

A business budget can help you plan ahead and manage money effectively.

A budget is a plan for your business over the next 12 months. It shows how much money you expect to bring in and spend, plus it shows how much of that money you'll be able to save or invest.
A budget helps you track how well your business is doing compared with the plan. You can use this information to see if there are things that need adjusting and make changes as necessary.
Having a budget means that if something unexpected happens (like an employee getting sick), then there's still enough money in reserve for them not having worked for a few weeks or months without affecting the business.

Conclusion

As we’ve discussed, a budget is one of the most important tools that you can use to manage your business. It will help you plan ahead and make sure that you have enough money to pay all of your bills. It can also help you save for future expenses or unexpected costs by showing where you can cut back on spending today while still meeting your obligations tomorrow.