How to Create a Small Business Budget in 5 Simple Steps

Business budget

Last Updated April 1, 2024

Introduction In the world of business, financial planning is crucial for success. One of the most essential tools for this purpose is a business budget. A budget helps you track income, manage expenses, and plan for the future. In this article, we’ll discuss how to create a small business budget in 5 simple steps, following United States and IRS guidelines.

What’s a Business Budget—and Why Is It Important?

A business budget is a financial plan that outlines your business’s revenue and expenses over a specific period. It helps you allocate resources effectively, make sound financial decisions, and achieve your business goals. Here are some key reasons why a business budget is important:

  • Make Sound Financial Decisions A budget provides a clear picture of your financial health, allowing you to make informed decisions. By tracking income and expenses, you can identify areas where you can cut costs or invest more resources.
  • Identify Where to Cut Spending or Grow Revenue With a budget in place, you can easily identify areas where you’re overspending or not generating enough revenue. This insight enables you to take corrective actions to improve your financial position.
  • Land Funding to Grow Your Business When seeking funding or loans for your business, having a well-defined budget can increase your chances of approval. Lenders and investors want to see that you have a solid financial plan in place.

Business Budget Step 1

Tally Your Income Sources The first step in creating a business budget is to identify all your sources of income. This includes revenue from sales, services, investments, and any other sources. Be sure to include both recurring and one-time income sources.

For businesses in New York, it’s important to account for any state-specific income sources, such as grants, tax credits, or other incentives.

Business Budget Step 2

Determine Fixed Costs: Fixed costs are constant month-to-month, such as rent, utilities, insurance, and salaries. Determine the total amount of these costs for the budget period.

In New York, businesses may also have to consider additional fixed costs such as state-specific taxes, licensing fees, or regulatory compliance costs.

Business Budget Step 3

Include Variable Expenses Variable expenses are costs that fluctuate based on your business’s activity level, such as materials, supplies, and marketing expenses. Estimate these costs based on past data or industry standards.

For businesses in New York, variable expenses may include costs related to seasonal fluctuations, local marketing campaigns, or special events.

Business Budget Step 4

Predict One-Time Spends One-time expenses are costs that occur sporadically, such as equipment purchases, software upgrades, or marketing campaigns. Predict these expenses as accurately as possible based on your business’s needs.

In New York, businesses may also have to consider one-time spending related to regulatory changes, technology upgrades, or industry-specific investments.

Business Budget Step 5

Pull It All Together Once you have gathered all the necessary information, it’s time to create your budget. Use a spreadsheet or budgeting software to organize your income, fixed costs, variable expenses, and one-time spending. Calculate your total income and subtract your total expenses to determine if you have a surplus or deficit.

Use Your Business Budget to Stay on Track A budget is only useful if you use it to guide your financial decisions. Monitor your actual income and expenses regularly against your budgeted amounts. Adjust your budget as needed to stay on track and achieve your business goals.

Conclusion Creating a small business budget doesn’t have to be complicated. By following these five simple steps and considering the specific rules and regulations in New York, you can take control of your finances and set your business up for success.