How to make a budget for a small business

If you want your small business to succeed long-term, creating a budget is essential. Without one, you’re basically flying blind. 

A reasonable budget will prevent you from overspending and going broke. But on top of that, it can also help you increase your overall profits and plan for future growth. 

When creating a budget for your small business, make sure you follow these essential steps to give yourself the best chance of success:

1. Research similar businesses.
2. Plan for fixed expenses.
3. Predict variable expenses. 
4. Plan for one-off costs. 
5. Create an emergency fund. 
6. Project your trading revenue. 
7. Include some wiggle room. 
8. Review and adjust your budget. 
9. Make profit-and-loss statements. 
10. Manage your budget with accounting software. 

If you’re starting from scratch, you’ll need to get a rough idea of what your budget will look like. The best way to do that is with research. 

Look online and ask other local business owners about their budgets. Of course, the answers will vary, but you should end up with a rough idea of what you can expect to spend on vital services compared to your revenue.

Fixed costs will be the backbone of your expense budget because they should be the same every time. You’ll know exactly how much you can expect to spend every month, so they’re much easier to plan around. 

Fixed costs usually concern essential running costs, such as:

• Rent for your office. 
• Insurance expenses. 
• Bank fees.
• Subscriptions.
• Equipment leases.
• Fuel for vehicles. 

Because fixed costs are normally essential running costs, this part of the budget represents the minimum amount of money your business needs to continue operations. 

The counterpart to fixed expenses, variable expenses often change depending on the situation. For example, manufacturing costs would come under variable expenses because the amount you pay per unit will vary depending on the size of your order. And the size of your order will change depending on how much demand you have over a certain period. 

Because they can change quickly, variable expenses need to be reviewed every month and updated in the budget. 

Finally, you’ll need to think about one-off costs. Unlike fixed and variables expenses, one-off costs typically only fall into two categories:

• Set up costs – things like equipment and office furniture. 
• Unexpected costs – things like repairs, legal costs, or refunds. 

Naturally, the unexpected costs are much harder to plan around, so it’s a good idea to start an emergency fund in preparation for sudden large expenses. 

Unexpected costs can sneak up on you at any time. Equipment breaks, accidents happen, and manufacturing prices can change without warning. 

It’s best to start with a little extra in the bank before starting a business. Then, after that, keep adding to it every month for extra protection. 

As well as consistent saving, it’s a good idea to figure out what kind of emergencies are likely to happen and how much they would cost. For example, how much would it cost to replace or repair vital pieces of equipment? Of course, you can’t be 100% ready for the unexpected, but careful planning can limit the negative effects. 

As well as predicting various expenses, your budget should also include your projected revenue. Revenue is based on the number of customers you have and your prices for your products and services. 

For new businesses, this can be tricky because you can only make educated guesses. Once again, research will help you make better predictions. Find similar businesses in your local area and ask how much they’re able to charge their customers. 

Once you’ve been trading for a while, this becomes much easier – review your past sales activity in order to make future predictions. Once you’re able to figure out revenue projections for the year, you can use those figures to:

• Create long-term financial goals. 
• Compare your predictions with actual performance.
• Make more accurate future budgets. 
• Plan for expansions.

When making a small business budget, it’s crucial to remember that nothing is 100% certain. Even your best estimates are just an educated guess, and planning around razor-thin margins could spell disaster if your income or expenses suddenly change. 

It’s a case of hoping for the best but planning for the worst. Try to overestimate your expenses and underestimate your revenue. 

If you’re wrong, that’s great – it just means you’ll have more money to play with. And if you’re right, then you’re already prepared. 

Financial management may not be the most exciting part of running a business, but it needs constant attention. 

After creating an annual budget, you should schedule a budget review every month or two to see how the reality compares to your predictions. 

If things aren’t going as planned, you can catch it early and make adjustments to ensure you’re better prepared for the rest of the year. 

Profit and loss statements are a good indicator of your business’ financial health. It shows how much money is left after deducting your expenses.  

Regular profit and loss statements can show your exactly where you’re losing/making money, allowing you to make more informed financial decisions. 

For example, you might see that your prices are too low or your manufacturing costs are too high, allowing you to take action before it eats into your budget.

Managing a budget for a small business is an ongoing job that requires time and attention. You need to know exactly what’s happening in your business account at all times and use the information to make future predictions. 

If you use the Countingup app, you’ll have a business account that can do all of that for you. Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place.

Countingup is the perfect service for a small business managing a budget thanks to innovative features like:

• Tax estimates – View tax estimates all year round so that you know how much to set aside / don’t have any surprises when it comes to submitting your tax return.

• Profit and loss statements – Countingup uses real-time cash flow insights to generate accurate profit and loss statements.  

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Start your three-month free trial today. 

Find out more here.