As a small business owner, you have to figure out a lot of things you’ve never done before. Creating a good business budget is the most important component.

1. Creating a Budget
for Your Business

2. As a small business owner, you have to figure out a lot
of things you’ve never done before. One of them is how
to create a business budget—and that can be
intimidating, especially when you’re just starting out.
How, exactly, do you know where to find the right
financial information—let alone learn the business
finance terminology—and put all that data together in
the right order?
Small business budgets are empowering. They give you
the knowledge and insight to eliminate wasteful
spending and get to profitability faster. A well-planned
small business budget will:

3. • Show you how many sales you need to cover costs
(Break Even)
• Figure out how much money you can reinvest in the
business
• Find out when you can afford to hire help
When setting a business budget, you need good
numbers. Don’t guess at what’s coming in and what’s
going out. You could be making assumptions that just
aren’t true. Take the time to look into your accounts
and dig out the real figures. It might sound like hard
work but it’s worth it.

4. Small business budgets are easier to make than you
think
Budgeting has a lot of baggage. It sounds boring,
complicated and even daunting. But there’s no need to
put it off. There are just three broad sets of figures to
get your head around and they’re really simple.
Setting a budget is part of becoming financially literate,
and it’s a vital skill. The better you can ‘read’ the figures
relating to your business, the more successful you’ll be.
And you don’t need to become an accountant to do it.

5. The numbers that matter when setting a budget
So, which figures are important for your small business
budget? Fortunately you don’t need to consider
everything. These groups of figures clearly tell the story
of your finances:

6. 1. Profit & Loss report
• This report tells you at a glance whether you’re
making money or losing it. To do that, you’ll subtract
your expenses from your income.
• Income (revenue): How much money are you
generating from sales of your products or services? It
helps to break these into:
• Recurring income: regular and reliable revenue from
client retainers and contract work
• Expected income: predictions of future income. This
is a forecast of what your business is likely to earn.

7. Expenses (costs): How much money are you spending
on business costs such as staff, raw materials and
marketing? As with income, it helps to break these into:
• Recurring expenditure: your monthly payments for
rent, utilities, payroll and so on
• Sundry costs: occasional payments for office
supplies, client entertainment expenses and other
items
It can be easy to overlook some of the costs of doing
business. To help capture them all, consider thing like:

8. • Depreciation: business assets, such as computers
and equipment, lose value as they get older. That
should be counted as a cost.
• Overheads: make sure you don’t overlook fixed costs
such as rent or energy (eg, electricity, gas, transport
fuel)
• Payroll: the total cost of employing your staff –
including insurance, taxes and benefits.
• Debt repayments: regular outgoings to repay loans or
other business investments
If you have more revenue coming in than costs going
out, you’re making a profit. If it’s the other way around,
you’re making a loss. A loss is okay in certain situations
but losses aren’t sustainable over the long term.

9. If you make a profit, think carefully about what to do
with it. Could you:
• Drive bigger profits by reinvesting in the business?
• Save money by paying down debts quicker?
• Keep cash in reserve to ride out future revenue dips
(this is an especially big consideration for seasonal
businesses)?
There are many ways to treat a profit and setting a
business budget will help you decide on the right
strategy.
Having a budget is like turning on a light in a dark room.
You’ll be able to see the obstacles to your business and
find your way around them.

10. 2. Balance Sheet
• This tells you what your business is worth. It’s the
difference between what you own and what you
owe. On the good side of the balance sheet you’ll
find:
• the value of the assets owned by your business, such
as work tools or real estate
• cash you have in the bank
• invoices that have been sent to clients but have not
yet been paid
All of these are business assets. On the other side of
the balance sheet are your liabilities, which include:

11. • expenses that have been incurred but not yet paid,
such as bills from suppliers
• taxes that are due to be paid in the near future
• loans or other business debts that you have
The balance sheet shows your assets minus your
liabilities.

12. 3. Trial balance
A trial balance is another very useful accounting
concept. It shows all your debits, credits, assets and
liabilities on a single document. In other words, it
represents the entire balance of your business
accounts.
With all this information at your fingertips, you’re ready
to start setting a budget.
Creating your first small business budget
Now that you have all your current financial
information in black and white, you can create a
forward-looking budget. It will tell you how much you:

13. • spend running the business
• can invest to improve the business
• can pay yourself (and any shareholders)
A budget will also give you a much better idea of what
your cash flow will look like. This will help you avoid
running out of money and getting into a tight spot with
creditors. Your budget will also show you where you
can make savings.
Testing different scenarios – what if…?
Once you have a basic small business budget, you can
start playing with the numbers.

14. • What if sales go up by 10 percent?
• What if you lose your biggest client?
• What if you negotiate lower rent?
You can try dozens of different variables here. Many
businesses use this type of exercise to find out when
they can afford to hire staff. You can too, by adding
payroll to your costs and seeing how that affects your
profit.
You can create several versions of the budget to cover
many variables. Experiment as much as you like and see
what the outcomes look like.

15. An option for painless budgeting
Now that you know how to go about setting a budget,
there’s nothing stopping you from getting started –
except, perhaps, the effort. Sifting through financial
records to pull the data you need can be gruelling. Even
so, it’s best to avoid shortcuts such as estimating costs.
If you’re looking for a quicker and less error-prone way
to build a small business budget, consider accounting
software. 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.

16. Smart software can also show your income and
expenditure in graphs and charts. That makes it much
easier to spot trends and see how your business is
performing.
Don’t be afraid to ask for help
Setting a budget isn’t complicated but it can still help to
involve an expert. A bookkeeper or accountant can
double-check the numbers and help you make realistic
predictions about business growth, upcoming
expenses, and tax exposure. They can also advise you
on what to do if the actual numbers deviate from the
predicted ones.

17. Budgets put you in control
The real advantage of setting a budget is that it helps
you make strategic business decisions. Not sure what’s
going to happen over the next six months? Try a variety
of different scenarios and see what numbers emerge.
Having a budget also means you’re able to seek
finance. So if you find you need a loan for something,
you have everything you need to go and apply for one
right away.

18. But most of all, a budget gives you more certainty and
confidence. You get a clearer picture of the state of
your business and you know where you stand. It’s like
turning on a light in a dark room. You’ll be able to see
the obstacles and find your way around them.
And always remember that a small business budget
isn’t set in stone. As your situation changes, you can
make changes to your figures and see what it means for
your profit.
If you are considering assistance with your business
bookkeeping, speak with one of our team members
today.