Setting a budget for your small business can prevent excessive spending and put you on a path toward profitability.
An effective budget would show you how much you need to generate in sales to cover costs, as well as how much you can afford to reinvest in the business. Additionally, you could use a budget to figure out when you’d have the means to hire employees.
It may seem like a daunting task to comb through your business’s finances but sitting down to create a budget for your small business would be time well-spent. Continue reading to understand what budgeting entails and how to find a business budget template to get started.
Why does your business need a budget?
A business budget puts your monthly expenses in writing, including your office lease payments, travel costs, website hosting fees, marketing expenses and the cost of supplies. Documenting these regular costs would help you set aside money each month to cover the bills and spend only what is left over.
A budget would give you a detailed look at where your money is going. You would be able to see how much you need to earn in sales to not only break even but become profitable.
As your business changes over time, your budget can help you be flexible in your spending. If a big, one-time expense comes up, you could look at line items on your budget to see where you could make cuts to cover the unexpected purchase.
Your budget should include all business expenses, even the small ones, so you don’t underestimate your financial needs. In the next section, we’ll discuss how to find a budget template for your business.
Creating your business budget
Before writing your business budget, there are a couple of financial statements you need to understand related to how your business earns and spends money.
Profit and loss statement
A profit and loss statement, or income statement, would illustrate whether your business is making or losing money. You would need to subtract your expenses from your income to determine this. If your revenue exceeds your costs, then your business is profitable. But if costs are higher than revenue, then you’re likely making a loss.
When doing the math, include all recurring income and expected income in your total revenue. Same with expenses – include recurring and fixed costs as well as one-off purchases. Also include payroll, debt repayments and depreciation of business assets in your total expenses.
Once you’ve determined if your business is making a profit or a loss, you could decide how to move forward with your budget. You could set up the budget so you save money to reduce spending, or invest in growing your profits.
Your balance sheet would show your assets, liabilities and overall worth of your business. To find the difference between what your business owns and owes, you would need to subtract monthly liabilities from monthly assets.
Your total assets should include the value of everything the business owns, such as real estate or equipment, as well as money in your business bank account and outstanding invoices.
Your total liabilities should be comprised of any loans or other business debt, bills that have not yet been paid and taxes due in the near future.
The balance sheet allows you to see all assets and liabilities to figure out the net worth of the business. This information would help shape your budget.
Writing your budget
The information on your financial statements would inform your business budget. Consider creating a spreadsheet separating your costs into two categories to track spending: one-time expenses, like equipment, and recurring costs, like monthly rent and utility bills.
You could create an individual sheet for each month, or combine data from each month on one sheet to track your yearly spending. Your spreadsheet should also include your projected sales, revenue and profit so you can compare your costs to your income.
Once you’ve filled out your spreadsheet, you could adjust the numbers to illustrate various scenarios. For instance, you could evaluate how increasing or adding a certain expense would impact your revenue or profit.
Choosing a business budget template
After becoming familiar with your monthly expenses and income, you would be better prepared to determine what’s essential to your budget. You could create a weekly or monthly budget, or both, to keep your spending on track.
Here’s an example of what your budget may look like:
Various websites offer online templates, often for free. Here are a few available to download:
- Monthly budget template from QuickBooks – This template works with Microsoft Excel and Google Docs. It tracks monthly expenses and one-time expenses on a single sheet to calculate total monthly costs. This spreadsheet is designed for new businesses looking to estimate initial startup costs.
- Monthly budget template from Smartsheet – This template works with Microsoft Excel or the Smartsheet platform. It includes sheets for tracking one type of income source and one type of expense as well as cash transactions each month. Smartsheet also provides multiple templates for various needs, such as a 12-month budget, a specific project budget and a first-year budget.
- Money management template from Vertex – This template works with Microsoft Excel and Google Sheets. It records spending and income to create a yearly budget. Vertex’s template includes worksheets for service-based and product-based businesses.
- Small business budget from Capterra – This template also works with Microsoft Excel. Capterra’s budget tool allows you to input your yearly spending goals to calculate what your financial activity should look like each month. You can update your spreadsheet with your business’s actual monthly results to see if you’re on track to meet your goals.
- Small business budget management templates from PDFConverter.com – PDFConverter.com provides links to 15 downloadable Microsoft Excel spreadsheets. The templates are designed with specific budgeting goals in mind, like budgeting for marketing or manufacturing expenses, setting a business travel or event budget or creating a rolling budget to forecast future spending.
When filling out your business budget, most templates would require you to determine the number of months the budget will cover. Then, you would enter your costs and income into their respective fields on the spreadsheet. An embedded formula would automatically populate total amounts based on the information you entered.
Setting a budget and sticking to it
A premade template would take much of the legwork out of making your business budget. But you would still need to interpret those numbers to make changes within your operation.
You could refer to your budget to adjust variable expenses to offset any anticipated changes in your cash flow. You should also check your budget before taking on a major expense, like purchasing equipment or expanding the business, to make sure it fits within your current spending plan.
For startups, a business budget can be crucial. New business owners often underestimate startup costs and setting a budget can help you stay on track. You also may have to submit a budget as part of your business plan when applying for loans or investor funding.
Any business can benefit from budgeting, as it would help you make strategic decisions about the future of your company. You could use your budget to explore different scenarios, plugging in expenses to see what your business can afford.
Your business budget is a flexible document and can change as your business evolves. Maintaining a budget as you grow would help you understand your spending habits and revenue patterns, so you can feel comfortable making purchases that benefit the business.