When you’re building a business, there’s a lot to consider, from marketing and finding new clients to building a website and building your digital presence. However, there is one element you should keep an eye on from the start — and that is your business budget.
Having a detailed and accurate budget is a must if you want to build a thriving and sustainable business. But how exactly do you make it?
Let’s take a look at how to create a small business budget in five simple and straightforward steps.
Table Of Contents
1 What is a Business Budget and Why Is It Important?
2 1. Calculate Your Source of Income
3 2. Determine Fixed Costs
4 3. Include Variable Costs
5 4. Predicted One-Time Spends
6 5. Put It All Together
7 Case Examples
7.1 Revenue:
7.2 Load:
8 Use Your Budget to Stay On Plan
What is a Business Budget and Why Is It Important?
Before we get into how to create a business budget, let’s take a quick look at what a business budget is — and why it’s so important for your small business.
A business budget is an overview of your business finances. It outlines key information about your current financial state (including income and expenses) and your long-term financial goals.
Since 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.
And, as a financially savvy business owner, you’ll also want to have a budget to help you in:
- Make good financial decisions. In many ways, your business budget is like a financial roadmap. It helps you evaluate your business’s current financial position — and what you need to do to achieve your financial goals in the future.
- Identify places to cut expenses or increase income. Your business budget can help you identify areas to reduce your expenses or increase your income, which will increase your profitability in the process.
- Funding to grow your business. If you plan to apply for a business loan or raise funds from investors, you must provide a detailed budget outlining your income and expenses.
Now that you understand why business budgeting is so important, let’s talk about how to make it more effective.
1. Calculate Your Source of Income
This is the first and foremost thing. When building a small business budget, you need to figure out how much money your business is making each month and where that money is coming from. According To ET Money How to Calculate your Income Tax? Step-by-Step Guide for Income Tax Calculation
Your sales figures that you can get from your income statement are a great place to start. From there, you can add another source of income for your business throughout the month.
The total number of your revenue sources will depend on your business model.
For example, if you run a freelance writing business, you may have multiple sources of income from:
- Freelance writing project
- Writing courses you sell on your website
- Consult other writers starting small businesses
Or, if you run a physical retail business, you may have only one source of income from selling your store.
No matter how many sources of income you have, be sure to factor in any and all income that flows into your business — then count them all to get a clear picture of your total monthly income.
2. Determine Fixed Costs
Once you understand your income, it’s time to tackle your expenses or expenses — starting with fixed costs.
Your fixed costs are any expenses that stay the same from month to month. This can include expenses such as rent, certain utilities (such as internet or phone plans), website hosting, and payroll costs.
You can also find out the cost classification through this article.
Review your expenses and see which costs stay the same from month to month. These are the costs you would categorize as fixed costs.
Once these costs are determined, add them all together to get the total cost of the fixed costs for the month.
Our tip: If you’re just starting out in business and don’t have financial data to review, be sure to use projected costs. For example, if you have signed a lease for office space, use the monthly rent you will pay in the future.
3. Include Variable Costs
Variable costs don’t come with a fixed price tag — and will vary each month based on your business performance and activity. This can include things like usage-based utilities (such as electricity or gas), shipping costs, sales commissions, or travel expenses.
Variable costs, by definition, will change from month to month. When your profits are higher than expected, you can spend more on variables that will help your business scale faster.
But when your profits are lower than expected, consider cutting these variable costs until you can get to your bottom line.
At the end of each month, calculate your variable costs. Over time, you’ll find how these expenses fluctuate with your business performance or over a given month, which can help you make more accurate financial and budget projections.
4. Predicted One-Time Spends
Many of your business expenses will be regular expenses that you pay each month, whether they are fixed or variable expenses. But there are also costs that will occur much less frequently. Don’t forget to include those costs in your budget as well.
If you know you have one-time expenses on your business (for example, an upcoming business course or a new laptop), adding them to your budget can help you set aside the necessary financial resources to cover those expenses and protect your business from sudden financial burdens. arrived with great value.
In addition to adding planned one-time expenses to your budget, you should also add contingencies to cover unplanned purchases or expenses, such as repairing a broken cell phone or hiring an IT consultant to deal with security breaches.
That way, when unexpected expenses arise, you’re all set!
5. Unite Everything
You have collected all your sources of income and all your expenses. What’s next? Putting it all together to get a comprehensive picture of your financial position for the month.
In your business budget, you want to calculate your total revenue and your total expenses (that is, add up your total fixed costs, variable expenses and one-time expenses)—and then compare your cash inflows (revenues) with your cash outflows (expenses) to determine your overall profitability. whole.
Sample case
Having trouble imagining what an ongoing business budget would look like? Here’s a sample budget to give you an idea of what your new business budget might look like each month:
Income:
- Client Hourly Earnings: 5,000,000
- Client B’s Hourly Earnings: 4,500,000
- Client’s Hourly Earnings C: 6,000,000
- Product Sales: 1,500,000
- Loan: 1,000,000
- Savings: 1,000,000
- Investment Income: 500,000
Total Revenue: 19,500,000
Burden:
Fixed cost
- Sewa: 1.000.000
- Internet: 50.000
- Payroll fee: 5,000,000
- Website hosting: 50,000
- Insurance: 50,000
- Government and bank fees: 25,000
- Mobile: 50,000
- Accounting services: 100,000
- Legal service: 100,000
Total Fixed Cost: 6,425,000
Variable cost
- Sales commission: 2,000,000
- Contractor wage: 500,000
- Electricity bill: 125,000
- Gas bill: 75,000
- Water bill: 125,000
- Printing service: 300,000
- Raw material: 200,000
- Digital advertising fee: 750,000
- Trips and events: 0
- Transportation: 50,000
Total Variable Cost: 4,125,000
One -time withdrawal
- Office furniture: 450,000
- Office supplies for new location: 300,000
- December business retreat: 1,000,000
- New time tracking software: 500,000
- Client reward: 100,000
One Time Spend: 2,350,000
Total Load: 12,900,000
Total Revenue ( 19,500,000) – Total Expenses (12,9,000,000) = Total Net Income ( 6,600,000)
Most importantly, once you have a clear picture of your profitability for the month, you can use it to make sound financial decisions for your small business going forward.
For example, if you realize you can’t afford it and are spending more than you make, you can cut spending and focus on finding new clients.
Or, if your income is significantly higher than your expenses, you might consider investing your profits back into your business (such as investing in new software or equipment).
Use Your Budget to Stay on Plan
Working on a budget for your business may seem like a hassle. However, even if it takes a little time and energy, all the effort will be worth it. A thorough business budgeting gives you the financial insight you need to make the right decisions for your business to grow, thrive and prosper in the future.