This article will walk you step by step on how to create a Small Business Budget.
It does not matter what type of business you have. You will need a budget to inform good decisions.
As a small business owner, with so much on your plate, from marketing, sales, customer service, employees, etc. it’s easy to postpone financial tasks.
And if you do not have much knowledge or experience in finances, the learning curve could deter you from spending the time needed understanding your business finances.
Your small business budget should be at the forefront of your business activities in order to be successful.
There is a large number of small business owners who rely on their bank account balances to make day-to-day decisions.
This is a big mistake.
Having a well-thought-out budget will help inform your decisions quickly and accurately.
How to create a small business budget: Why take time to do it?
- To track your business expenses
- To know how much revenue you need to expand your business
- Spot problems quickly before they get too big and out of control
- If you need to raise funds or apply for a business loan, your budget can support your revenue and profitability plans
- Minimize business risk – Before committing to the monthly spend from signing that long-term commitment lease or purchasing equipment, your budget will inform you what you can afford.
How to create a business budget: 7 simple steps
1. Income sources (Revenue)
List out all your income sources. For example, if you are a blogger, you could have multiple sources of income from affiliate marketing, consultations, etc.
Add all these income sources together to get a total of your total monthly revenue
Try to be as accurate as possible. You can look back over the last few months to figure out how much money has come in
If your business is seasonal, look back at the peak months as well as the slump months. Budget using the same seasonality approach. This will help you adequately prepare for the slump months.
2. Fixed Costs
List out all your fixed expenses. These expenses will not be driven by your sales. They will be incurred regardless of whether you make money or not.
Examples of fixed cost might include:
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- Rent
- Web Hosting
- Insurance
- Payroll
- Taxes
3. Variable Costs
List out all your variable expenses.
These will change depending on how much you use the service or sell.
For example, if you’re shipping out your products, you need to package them. Packaging is a variable expense.
The more products your ship, the more packaging you use and vice versa.
Examples of variable cost might include:
-
- Packaging
- Shipping & Fulfillment
- Office Supplies
- Marketing Costs
- Utilities
4. One-time cost
While most of your expenses will be either fixed or variable costs, you will also have costs that happen less frequently. These can be planned out,
Examples of one-time cost might include:
-
- New Laptop
- Training & Development
- Equipment
- Licenses
5. Unplanned cost
One of the ways to avoid a large financial burden is to build a buffer within your budget. This will come in handy when unplanned costs happen.
Examples of unplanned cost might include:
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- Security breaches into your software system
- Equipment repairs
- Professional fees – when you need a specialist
- Payment delays
6. Taxes
As a small business owner, you will need to handle your taxes.
If your business is not incorporated, you must pay self-employment tax. This tax is made up of Social Security (12.4%) and Medicare (2.9%) for a total of 15.3% of your income.
In addition, you will need to pay Federal income tax as well as state and local income taxes
Depending on the kind of business you have, you might be liable for more taxes.
If you are not sure of your tax liability, you need to need to contact a tax pro
TurboTax can assist in figuring out your tax liability or you can find a tax professional locally.
Once you know how much taxes you will owe, you can add to your budget
7. Putting it all together
The final step is putting it all together to get an overall view of your business budget.
You can now use your budget to make informed decisions.
For example, if you notice you spent more in the previous month than your budget, you can start to find out why
You can quickly spot problems and course-correct before the problem becomes too big
