How to Create Your Business Budget: The Basics

There’s more to running your own business than coming up with an exciting idea for a product or service. Once you’ve figured out what you’re going to sell, you’ll also need to come up with a plan for how you’re going to get your business off the ground, and how you’re going to keep your company thriving when it’s up and running.

For most business owners, a budget is one of the most valuable tools available when it comes to running a company. It provides direction and guidance when you’re figuring out how to spend your initial earnings and profits, while ensuring that you always have a plan in place to deal with the dips and troughs of running a company.

Why Do You Need a Budget?

There are many reasons why companies need a budget to help them get started. First and foremost, a budget allows you to forecast your incoming and outgoing expenses, so you always have money on hand to take advantage of the opportunities that come your way. Your budget will also help you to see how much you can reasonably afford to withdraw from your budget so that you can pay yourself and invest back into your new venture.

Additionally, since most companies need some initial capital to help them get started, a budget will help you to apply for a loan with a bank or request investments from other financial groups. Almost all business loan providers will ask to see your budget plan before they consider giving you a loan. Your budget will show your projected incoming and outgoing expenses for your business, showing a loan provider that you can afford to repay what you borrow. If you’ve planned your budget effectively enough, then you could benefit from more credibility with your preferred lender.

So, how do you get started creating a business budget?

Designing Your Business Budget

The good thing about business budgets is that they’re very flexible. Just like a personal budget, your business financial plan can be as complicated or simple as you want it to be – depending on the nature of your company. To get started, you’ll need to:

  • List all of the sources of monthly income that you know you have: This includes sales that you make to regular clients, potential new sales that you expect to earn in the months to come, and interest that you might earn from your business bank accounts and investments. If you don’t get paid immediately, then you might need to deduct a portion of your expected income to account for late and missing payments.
  • List all of your fixed expenses: The fixed expenses in your business budget are the things that you need to pay for consistently each month. These might include rent for your building, utilities, phone and broadband bills, and even expenses for crucial members of staff. If your fixed fees are too close to the full amount of your expected income, then you might need to look for way to cut costs.
  • Plan your variable expenses: Once you’ve got your fixed expenses ironed out, think about the variable expenses that may also occur from time to time. For instance, you might need to spend extra money on marketing from time to time, or you might pay for additional people to join your team during periods of high demand.

With all your incoming and outgoing expenses listed out, you can begin to figure out how much money you have leftover at the end of each month in “profit”. Your profit is the money that you can use to pay yourself, invest in your company, and put towards new opportunities.

Planning a Budget for a Startup

Obviously, planning the budget that we outlined above requires you to know some fixed numbers about your incoming and outgoing expenses. However, if you don’t have a history of sales and expenses to guide you, then you might be unsure how you can start planning your budget in the first place. The best thing you can do is look into the budgets of other companies in the same position as you. Looking into historical and competitive data can give you a useful insight into the money you could potentially make.

Additionally, it’s worth working with accountants and bookkeepers as a startup, so that you can access additional sources of guidance and support as your business continues to change and grow. The more you learn about the money that you really earn and spend each month, the more accurate you can begin to make your budget.

Scott Andrews is a UK based university graduate with a keen interest in finance and budgeting both from a personal and professional stand point.

How to Create Your Business Budget: The Basics

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