If you came across this blog you may be wondering, how to create a small business budget. Believe it or not, learning how to create a small business budget is easier than you think. In this 8-step guide, I’ll be showing you how you can budget for your business like a pro.
Small businesses need a budget because it creates structure, provides financial awareness, and increases profits.
If you find yourself overspending, short of cash, or just not understanding where your money is going, a budget will help fix that.
Most people think a budget is intimidating and requires a lot of sacrifice, but that couldn’t be further from the truth. In actuality, budgets allow you to spend your money more freely. For example, let’s say you want to take your team on a grand retreat to show them how much you appreciate their hard work. Instead of winging it or going into debt to make it happen, you budget it for it. Every month you allocate money for your extravagant retreat, vendors, and travel. Without a budget, you risk overspending or putting a hole in your business to make it happen.
A budget doesn’t always mean you have to give up something. It simply means you are allocating your income and expenses before the money actually comes in and leaves your bank account.
Step 1: To start, open a spreadsheet in Google sheets or excel. Pretty old school, I know! But when you’re just starting to budget, using software apps like QuickBooks Online can be quite confusing and intimidating. I always recommend using an excel or Google spreadsheet. As you get more advanced with your budgeting skills, feel free to move on to something a bit more fancy. However, as a small business, budgeting with a spreadsheet will be just fine.
Step 2: Next, set a monthly reminder to review on your budget. Every first week of the month, make a recurring day on your calendar to review your budget from the previous month and create a new budget for the upcoming month.
Step 3: Now that you have a your spreadsheet open and have set days to budget, it’s time to get started! To begin, determine your monthly income and note it on your spreadsheet. If your income fluctuates, make a calculated guess based on your average sales volume.
Step 4: Record your fixed costs. Fixed costs are overhead expenses that are NOT dependent on your sales activity. These costs typically do not change month-to-month. For example: rent, salaries, insurance etc.
Step 5: Record your variable costs. Variable costs are expenses that ARE dependent on your sales activity. These cost varies month-to-month. For example: taxes, shipping charges, advertising.
Step 6: Break these costs into categories, or as bookkeepers like to call them “Chart of Accounts”. For example, if you spend $3,000 on Facebook ads, the category would be “Advertising Expenses”. Or, if you spend $20,000 a month in payroll, you would record this as “Employee Compensation”.
Step 7: Now that you have your expected income and expected expenses, it’s time to do some math. It’s simple, I promise. Take your monthly income, subtract the costs of expenses, and your total number is your profit.
Monthly income – fixed costs – variable cost = Profit
Step 8: Great job on determining your costs. Review your spreadsheet and ask yourself, “Am I okay with how I am spending my money?” If the answer is no, it’s time to either cut some expenses, get rid of subscriptions or talk to a professional on how you can better manage your money.
Bonus tip: Always put money aside for unexpected costs. Things always come up, it’s best to be prepared.
I hope you found this helpful and have learned how to create a small business budget.
The key to a small business budget is to hold yourself accountable. If you find yourself too busy to maintain and manage your books, hire a professional bookkeeper. The investment will save you time, minimize how much you pay in taxes, and ensure that your finances are accurate.
October 4, 2021