How to create a business budget
Creating a budget for your small business may seem daunting, but it’s not as hard as you think.
Firstly, well done for being here. Creating a small business budget may seem like an obvious part of the process, but it’s often overlooked or not done properly.
Budgeting and forecasting for your small business may sound overwhelming, but it doesn’t have to be. I’ve broken it down into a few simple steps below.
Firstly, what is a budget?
It’s a word we hear all the time, but what does it actually mean? A budget makes an informed prediction about how much money will flow in and out of your business over your selected period of time.
Typically – to make it easier for tax purposes, and accountants like me – they’ll cover one financial year. But it’s also helpful, especially in the early days of running a business, to look at your monthly financial activity as well.
Why does a small business need a budget?
To make sure you don’t go broke! Budgeting and forecasting will help you determine whether your business idea is financially viable, and if you can afford to put in what is required to get it started.
Budgeting helps you determine things like:
How much will it cost to start up?
Will you need to borrow any money?
When will you break even?
How much do you need to charge customers to make sales?
Can you afford to scale or hire staff?
“Budgeting and forecasting will help you determine whether your business idea is financially viable, and if you can afford to put in what is required to get it started.”
How to make a budget for your small business
1. List your costs
Start by projecting your costs and noting when they’ll occur. Depending on what your business does, this could include things like supplies and inventory, office space rent, work tools or staff if you’re in a position to hire them. If each of your costs occur monthly, start with a month-by-month budget and build it out.
2. List your income
This is when your business plan comes in handy. List out the project number of sales x the price you’ll charge the period matching your expenses.
“List out the project number of sales x the price you’ll charge the period matching your expenses.”
Account for different outcomes
It can be useful to budget for both a strong year, and a not-so-strong year. Life can be unpredictable, and running a small business is certainly no exception. In your first year you’re likely to encounter a few unforeseen issues and learn some valuable lessons. It’s important not to bank on your best case scenario (just yet, anyway!)
If you’re stuck on budgeting when it comes to tax time or want some professional advice from an accountant or bookkeeper, feel free to get in touch.
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