How to Create a Small Business Budget

Creating a small business budget is a fundamental step for any entrepreneur looking to establish, grow, and sustain their business. A well-structured budget acts as a financial roadmap, guiding small business owners through the ups and downs of business operations. For women entrepreneurs, mastering how to create a small business budget is particularly empowering, as it paves the way for financial independence and success in the competitive business landscape.

Step 1: Understand Your Revenue

The first step in learning how to create a small business budget is to have a clear understanding of your business’s revenue. This is the total amount of money your business generates before any expenses are subtracted. For small businesses, especially those under the guidance of a CFO for small business, accurately projecting your revenue is crucial. It gives you a foundation on which to base all other budgeting decisions.

Step 2: Determine Fixed Costs

Next, identify all fixed costs associated with running your business. Fixed costs are expenses that remain relatively constant regardless of business activity levels, such as rent, salaries of employees (if any), insurance, and utility bills. These are easier to predict than variable costs and provide a solid baseline for your small business budget.

Step 3: Include Variable Expenses

After fixed costs, incorporate variable expenses—costs that fluctuate with your business activity. This could include material costs, marketing expenses, and shipping fees. For a small business, especially one utilizing fractional CFO services, understanding variable expenses is crucial for creating a flexible and responsive budget.

Step 4: Predict One-time Spends

One-time spends, such as computer equipment or furniture, must also be accounted for in your small business budget. These are often overlooked but can significantly impact your financial planning. Estimating these costs will help you avoid surprises and maintain a healthy cash flow.

Step 5: Create a Contingency Fund

A contingency fund is essential for any small business budget. This fund acts as a financial cushion for unexpected expenses or economic downturns. Financial advisors and CFOs for small businesses strongly recommend having a contingency fund to safeguard your business’s financial health.

Step 6: Pull It All Together

With all the pieces in place, it’s time to pull everything together. Subtract your total expenses (fixed, variable, and one-time) from your total revenue to determine your budget’s surplus or deficit. A positive number indicates a surplus, allowing for growth investments or savings. A deficit signals the need for adjustments, such as reducing expenses or finding ways to increase revenue.

Step 7: Monitor and Adjust Your Budget Regularly

The final step in how to create a small business budget is regular monitoring and adjustment. Your budget is a living document that should evolve with your business. Regularly reviewing your budget against actual financial performance allows you to make informed decisions and keep your business on track financially.

Conclusion

Understanding how to create a small business budget is crucial for the success and sustainability of your enterprise. It provides a clear view of your financial health, helping you make informed decisions, prioritize expenses, and plan for the future. For female founders, a strong budget is not just a financial tool, but a roadmap to achieving business goals and empowering financial independence.

Centure Financial is a CFO and financial advisory firm for women, by women. We help female founders increase, manage, and preserve their wealth through fractional CFO services, strategic planning, and financial advisory. Our mission is to support you in navigating the financial complexities of running a business, ensuring your budget aligns with your business objectives and growth strategies.