Business Budgeting 101: How to Make a Budget Plan

how to make a budget for a business

You’ll know exactly how much you’re spending, how much you can spend, how much you’re making, and if there’s anywhere that you can cut back now or in the future. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate. Murphy’s law states, “Anything that can go wrong will go wrong.” That’s why you should set aside a contingency fund for your business. Knowing how much money is coming in and going out allows you to give every penny a “job” and use every dollar to your business’s greatest benefit.

What is included in a business budget?

An operating budget shows a business's projected revenue and the expenses associated with it for a period of time. It's very similar to a profit and loss report. It includes fixed cost, variable cost, capital costs, and non-operating expenses.

Regardless of how you manage your money away from work, a business budget is essential because it increases financial responsibility. A cash budget with both long and short term considerations will give a much clearer picture of the state of your company’s cash flow, and ultimately of its financial stability overall. Begin putting together your operating budget by, collaboratively with other managers, agreeing upon a revenue estimation. Then, have input from managing staff to estimate expenses for the coming year required to meet this projected revenue. Grant Cardone likes to say “Cash flow is king.” Where does your money come from?

The numbers that matter when setting a budget

But there’s one element that you want to stay on top of from the very beginning—and that’s your business budget. Check out these simple steps for managing your money so it keeps growing. One of the most amazing perks of running a profitable business isn’t getting but giving!

  • This allows you to plan for this expense in advance, ensuring that the funds should be available.
  • Categorizing your budget will keep you from feeling overwhelmed by all those numbers.
  • They might occur daily, weekly, monthly or yearly, so make sure to get as much data as you can.
  • Each decision you make will be far more financially informed, forward thinking, and growth-minded.
  • Specifically, take a look at items that can be controlled to a large degree.

When set up right, an accounting system will automatically record all your income and expenditure so you don’t have to manually gather the information. The profit and loss statement subtracts your costs from your revenue. It takes all of the funds generated and removes the expenses already spent such as wages, raw materials, office space and utilities. Just by reading this blog you’re already on your way to completing step one.

Calculate variable expenses

The IRS is standing by to “help” you meet your tax obligation, so be ready! If you don’t keep an eye on your taxes, your business will fail. How much you’ll owe depends on how much you make, but a good rule of thumb is to set aside 25% of your net profit how to make a budget for a business for taxes. You might even want to create a separate bank account to stash your tax money just to make sure you don’t overspend. And if you haven’t already, consider meeting with a tax professional to create a specific plan for your business.

how to make a budget for a business

Many companies, big and small, rely on Intuit’s services like Quickbooks and TurboTax. Even if you don’t use the company’s paid financial services, you can take advantage of Intuit’s free budget template, which works in Google Sheets or Excel. While creating a business budget can be straightforward, the process may be more complex for larger companies with multiple revenue streams and expenses. You can copy budget details from actuals for the prior year, copy data from an existing budget, or create a new budget from scratch. Adjustments can be made for each budget period, so you can adjust the amount each month to increase budgeted totals by a set amount or by percentage. Not every accounting software application offers budgeting capability, but the following small business accounting software applications do.

How to Prepare a Budget for an Organization: 4 Steps

For example, you might be dreaming of a larger office building or the latest software, but you want to make sure you have a healthy net revenue before you make the purchase. Fixed costs are the recurring costs you have during each month, quarter, or year. Examples include insurance, rent for office space, website hosting, and internet.

  • A viable budget for a small business is one of the solutions.
  • Companies that regularly make a business budget have a pretty good idea of how the whole process works.
  • When you’re creating a business budget, make sure you put aside extra cash and plan for contingencies.
  • To be realistic in your budgeting, you must assume that not all sales will be collected.
  • You can easily collaborate and share your financial data with team members to give feedback, make changes, or suggest reconciliations.
  • So, you only need to look for an average here, not specifics.

But while it takes a bit of time and energy, it’s worth the extra effort. Thorough business budgeting gives you the financial insights you need to make the right decisions for your business to grow, scale, and prosper in the future. Many of your business expenses will be regular expenses that you pay for each month, whether they’re fixed or variable costs. But there are also costs that will happen far less frequently.

Once you’re truly ready to create your budget, you’re ready for step two. Businesses run on money, so you’d think that managing every dollar would be natural for business owners. Unfortunately, though, new business owners often overlook the crucial step of making a business budget before they launch. If times are tight and money must be found somewhere in order to pay a crucial bill, advertise, or otherwise capitalize on an opportunity, consider cost-cutting. Specifically, take a look at items that can be controlled to a large degree. Another tip is to wait to make purchases until the start of a new billing cycle or to take full advantage of payment terms offered by suppliers and any creditors.

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