- What is a business budget and why do you need one? (affects pricing decisions -break even point, how much profit is necessary, how to decide what to pay yourself, etc)
- Key components to include in a budget
- How often to review and adjust
- Software good for creating business budgets
Your monthly budget is the foundation of all of your business finances. It puts you in control of your cash and your financial future. It’s important to remember that a monthly budget isn’t a hard and fast system that you have to follow rigidly. Many people avoid creating a budget because they feel it is too restrictive. But what’s true is that a business budget can actually take a lot OFF your mind. A budget is a plan that grows and adapts with you as your needs change.
What are some ways that a business budget can actually be liberating?
Keeping a monthly business budget make it easier to:
- Pay yourself
- Plan for the future
- Stay out of debt
- Make pricing decisions
- Hire the right people and services
- Make sound business decisions for growth
- Get and stay profitable
And much more.
Here are a few simple steps to create your monthly budget plan.
Step One: Choose Your Planning Medium/Tool
The first step is to decide which type of planning tool will work best for you. If you like to sit down with pen and paper, you can find simple accounting notebooks at your local office supply store. Or you can use your favorite word processing software or spreadsheet software.
There are also many small business accounting programs that include a budgeting feature. For example, Quickbooks Online allows you to set up a business budget and modify it based on either your previous year’s’ actual amounts or numbers you enter from scratch.
If you’re unsure what tool to use, consider the other tools you use to plan your business. For example, if your business plan is written longhand in a notebook then you may find that pen and paper works best for your budget, too.
Step Two: Your Income
There are three main categories to any budget and within those categories there will be a few columns. The first main category is your income. Create a list of your income sources. You probably know what they are already. However, if you’re uncertain of all the ways you make money, take a look at the monthly statement from your bank or payment processor (such as PayPal) and review your monthly income. Even if some income streams are less significant to you, include them.
For example:
- Product Sales
- Affiliate Commissions
- Advertising Revenue
- Other
You’ll want to create three columns next to each category. They include:
- Actual – How much did you actually make?
- Budgeted – How much did you think you’d make?
- Over/Under Budget – How much did you earn over/under what you budgeted (if any)?
Step Three: Your Expenses
The next step is to list your monthly expenses. These may not be so apparent, and some of them may not occur on a regular basis. For example, you may only pay for your website hosting once a year or every other year. Or you may pay for a software platform like Convertkit or Coschedule once a year to save money.
Review your bank statements to help you detail your regular expenses. If you’re just getting started in business and aren’t sure what your expenses will be then make your best guess. It’s always better to overestimate your expenses than to underestimate them. List your expenses by category. For example, under the category “Utilities” you might list electricity and gas as expenses.
Here are some common expenses that your budget should include:
SELLING
- Affiliate commissions
- Advertising
- Shipping & delivery
Total selling costs
Percentage of total
ADMINISTRATIVE
- Virtual administration
- Ghostwriter
- Insurance
- Loans
- Office supplies
- Postage
- Dues
- Other
Total administrative costs
Percentage of total
SERVICE & EQUIPMENT
- Accounting
- Legal
- Rent
- Utilities
- Telephone
- Hosting fees
- Domain name
- Marketing Software
- Other
Total S&E Costs
Percentage of total
After totaling up each section, it helps to calculate what percentage that category is compared to your total expenses. For example, it may be useful for you to know if you’re spending 50% of your budget on service and equipment when you’d rather be spending it on sales.
Again, as you did with income you’ll also want to include columns to track:
- Actual
- Budgeted
- Over/Under Budget
Step Four: Your Monthly Summary
The final step is to review all of the information at the end of the month to see how well you anticipated and planned. Your monthly summary can be positioned at the top of your budget or at the bottom of your budget. This information will help you create the next month’s budget.
You’ll want a line for your total income and your total expenses along with a line that details your income less expenses (aka profit). Again, also include columns for actual, budgeted, over budget and under budget.
Step Five: Putting Your Budgeting Plan into Action
A business budget is only useful if you actually USE it. Create a system to keep your income and expenses organized. (No, a pile of receipts in the shoebox is NOT a great idea.) Put a recurring appointment on your calendar for the end of the day, or the end of the week, and stick to that appointment. Use that time to review your income and expenses and what categories of income and expenses they are. If you use a paper system, staple the day’s or week’s receipts to a piece of paper with the total written on it. Do the same with your invoices or payments you receive. That way, when you sit down at the end of the month to review your budget and plan for the next month, you’ll have all of the information readily available.
Prepare to make adjustments as you go over the next few months. The first few months you may be off by quite a bit. However, the more data you gather over a longer period of time, the more you’ll learn to predict and anticipate income and expenses, notice trends in busy and slow months, and the more accurate your budget will become.
