Small Business Budget: An Essential Guide
Creating and maintaining a budget is an essential small business task, but much like personal life, it is something that’s not done routinely. Proper budgeting is big-picture money management; it can help you stay on track or help you grow.
Creating a small business budget can be easy or complex depending on the amount of detail you want to include. Either way, commit to making it part of your routine.
Items in a Small Business Budget
Small business budgets are pretty straightforward. They contain two main categories: revenue and expenses.
Revenue is income, and for a small business that means sales. Some companies, such as law firms, might receive a retainer for their services, which is also part of revenue.
Expenses are all of the costs that your business incurs, such as employee wages and benefits, office space payments, utilities, phone service, equipment, marketing and so on. You can break expenses down into subcategories to get more fine-tuned tracking:
- Fixed costs: These are costs that remain the same from month to month, such as a loan or lease payment.
- Variable costs: These are costs that vary each month, such as office supplies.
- Capital costs/one-time spends: If you start a business (start-up costs), build or improve a structure or purchase a delivery van, you incurred a capital cost or a one-time spend.
- Contingencies/slack: This is a miscellaneous category and should include a dollar amount for expenses that pop up unexpectedly. I’ve found this to be one of my most important categories. Without budgeting in some money for unexpected costs (there’s always something!), it’s easy to go over budget in any month.
Use a Template
Creating a budget is much easier if you start with a template, which may include line items you could overlook on your own. Two of my favorites are Capterra’s free small business budget template for Excel and the Google Sheets Annual business budget. They both provide ample guidance to complete the template and customize it for your business, as well as generate charts and graphs to get a visual look at income and expenses. The Capterra template allows you to create monthly and annual budgets, with a comparison to planned and actual expenses.
Another worthy mention is the Microsoft Office Business expense budget workbook (again, for Excel), but it focuses on expense planning and tracking rather than income. Where the Capterra and Google Sheets templates are no-frills and simple in design, the Office template is highly formatted and polished.
Most accounting software packages and online banking services include budgeting features as well. You can go with a template or use accounting or banking tools—choose whatever you’re most comfortable with and will want to use habitually.
Set Spending Goals
It may take you some time initially to create a budget from scratch, but once you do, you’ll have a comprehensive picture of income and expenses. This is a good time to set spending goals, which is a key part of budgeting.
Most small businesses have cycles of ebbs and flows. Maybe your company is seasonal, or you simply tend to make more sales during certain months of the year. Take those cycles into account when planning for expenses.
Update Your Budget Regularly
After the heavy lifting is done and your budget is complete, carve out some time at least monthly to keep it updated and to chart your progress. Remember that budgets are living documents, designed for modifications and adjustments. As your financial situation changes, so should your spending goals and budget.
If you use your budget as a projection tool, be conservative. It’s easy to get a little overzealous after a great month or quarter and begin increasing planned expenses under the assumption your financial situation will continue along that path.
Be careful. The economy changes constantly. It’s better to underestimate income and overestimate expenses, and come out with extra operating cash or money for savings and investments.
A budget is not meant to micromanage every dollar that flows through your business; use it as a tool to help you make sound financial decisions. Add a recurring calendar reminder to spend a few hours updating and maintaining your budget once a month. You’ll be happy with the results. Good luck!