Graph of business budget

Why you need a business budget? And how to start one

So you had a great idea and decided to turn it into a business! Congratulations! 

Did you know that over 5 million small businesses were started in 2022 according to the US Census Bureau.

Owning your own business is exciting and adventurous and can be stressful at times. One area of stress in your business can be finances. 

Did you know that around 20% of businesses fail within their first two years? One reason is the lack of a clear financial plan, otherwise known as a budget. 

Do you ever do “bank account budgeting?” That’s what I call it when you look at your bank balance to make decisions instead of looking at your plan or “budget.”

There is a better way!

This post will help you know what categories you need in your business budget and how to start your business budget.

WHAT TO INCLUDE IN YOUR BUSINESS BUDGET

Below I have listed five areas you need to help create a well-rounded budget.

  • Income: Start by estimating how much money you expect to earn from your sales or services. Keep it realistic; it’s better to estimate low than high.
  • Expenses: Identify your fixed and variable monthly expenses. Then find the irregular expenses that only happen yearly or every six months. Make sure you set aside money to cover these expenses when they occur.
  • Taxes: Taxes are an important part of your business finances. Create a separate account and transfer a percentage of your income to it each month. Depending on your business, you may need separate accounts for income tax, sales tax, and even payroll taxes. Failing to plan for tax payments can lead to financial trouble down the road. 

Read the Year-End Tax Prep Checklist for Small Businesses article to set up your small business for success during tax season.

  • Business Savings: It’s important to set aside money regularly for future business expenses or emergencies. Your business will likely need new equipment or need to weather a dry patch. By consistently adding to your savings account, you will be more prepared when the time comes.
  • Owner’s Pay: Most likely you started this business to provide income for yourself. It may be hard at the beginning, but remember to pay yourself regularly, even if it’s a small amount at the start. As your business grows, don’t forget to increase your owner’s pay.

CREATING A BUSINESS BUDGET

Now that you have the categories for your budget, you need to create it!

  • Set Up Your Spreadsheet: You can create your own simple budgeting spreadsheet or find a template online. 
  • Include ALL the Categories: As you create your budget, remember to add the irregular expenses, taxes, savings, and owner’s pay. This will help you create a realistic plan for your finances because it has more than just the monthly expenses.
  • Set Clear Goals: Now that you have a more accurate picture of your business finances, you can set better goals. Do you want to increase revenue, reduce expenses, or save for future purchases? Use your budget to help you reach your goals.
  • Track and Adjust: Creating a regular time to update your budget can help you identify overspending and make necessary adjustments to stay on track. Remember, your budget is a tool that can adapt to your changing financial needs.

I recently helped a business owner go through this process. 

During our first meeting she was stressed, confused, and almost hopeless. I walked her through each of these steps. 

When we talked about the irregular expenses and having a plan to save for them, she was blown away. Her business needs supplies at various times during the year and she would often just look at the bank account to see if there was enough money. 

She was so excited to create a realistic plan to save for large inventory purchases. She now knows how much to set aside for taxes, pay herself, and how to use the plan to make better decisions. 

A realistic budget (or plan) is your secret weapon for financial success. 

You can be like my client and make better business decisions when you look at your plan and not just your bank balance. 

You can also be prepared for tax season, planned and unplanned expenses, and know how much to pay yourself. Having a plan gives you confidence and makes owning your own business exciting and adventurous!

You can create your own business budget by following these steps. But if you want help schedule a free consultation and I will be happy to help you through the process.

Rene Barlow

Hi, I’m Rene Barlow!

The person who helps you keep more of your money!

I help women-owned businesses gain clarity and control of their business finances… and feel more confident in their financial decisions, using an easy, step-by-step process to organize and track your business numbers… and you grow your bottom line!

Start with a free consultation