Business Budget: 10 Simple Steps to Get You Started

“Do I really need a business budget?” Clients often ask me that.

And I have a simple answer: “Yes.”

A well-planned budget is a part of planning for success. It helps you figure out short and long-term goals. A business budget ensures you know where your money is coming from and going to.

It’s also a plan for emergencies like…I don’t know…a global pandemic?

Many things about doing business are different now, and having a plan to go forward is the best way to create continuity. Using a budget is your best tool to survive whatever comes next.

Here are some simple steps I recommend when building your business budget.

Step 1: Starting from Scratch? Hire Help!

If you have never made a business budget before, the first best way to start is to get qualified help. It can be overwhelming, and a bookkeeper is a good source of support for this project. They know how to gather your past data and analyze your numbers to make good plans and decisions.

Step 2: Set Aside Enough Planning Time

The first thing to prepare is some time on your calendar. Putting together your business budget is a project, not a quick task. You should plan on giving your budget a few focused, uninterrupted sessions over a couple of days. Or designate one full day of no meetings or other projects dedicated to future budgets and planning. This is a great thing to do at the end of the year or even quarterly throughout the year.

Step 3: Gather the Data You’ll Need

Your financial data from the past year, quarter, or month is key to forecasting and planning the future. The most important report you’ll need – and your bookkeeper can help you compile this – are your revenue and expenses for the past year.

You’ll also need the Chart of Accounts (COA) from your bookkeeping records. Each COA is customized to the business it supports. If you have a bookkeeping program, you should have the ability to export your COA reports as a .csv file. That file format allows you to easily import the data to Excel or other spreadsheet software like Google Sheets. It makes working with the data much more manageable.

Once you’ve successfully imported your Chart of Accounts to a spreadsheet, delete any accounts that are not related to business revenue or expenses, such as bank and equity accounts.

Step 4: Set Up Your Business Budget Template

If exporting data from your bookkeeping system isn’t an option, jump in with both feet, and do it manually. But make a plan to keep it organized so this is easier next time.

Primary data you need for a basic business budget template:

Populate column A with your COA data
Title columns B onward with months of the year (Jan-Dec)
Title the last column, after December, “Annual Totals”
Add accounts tracking income in the first section of rows
After the last row of income, create a row for Income Totals
Add rows of accounts tracking expenses after Income T
After the last row of expenses, create a row for Expense Totals
The last few rows are reserved for Total Expenses and Net Totals.

Feeling a little overwhelmed? We’ve created a simple budget spreadsheet (with formulas) to help you get started. You can download it HERE or find it on our Resources Page of the Essential Accounting Support website.

Step 5: Capture Your Cash

A business budget captures revenue and expenses during the month you expect to receive or pay them. Make sure to account for every dollar, so you know the job it is doing for you (aka Zero-Based Budgeting) and what you have left to work with.

Let’s start by assuming you’re working with my budget template.

Capturing Revenue

Begin by entering all your known revenue. If you have contracts in place that will pay into next year, put that into your plan first.

For example, let’s say the Smith contract pays $5,000 in January. Enter $5,000 into the January column.

A great feature of Excel is that you can add comments to the cells. As you total up your January expenses, use this function to list the contracts included in your January number. Do this for every month of the year.

Capturing Expenses

Next, we have to deal with the money going out. Enter your monthly recurring expenses, known as Fixed Expenses, such as Rent, insurance payments, etc., for every month of the year.

Then, enter your variable expenses such as electricity. Use past bills to predict general numbers, even though actual amounts can vary from month-to-month.

For example, you can expect electricity to be higher in the winter if it was higher last year. It is vital to capture expenses during the month they occur. It’s a best practice when planning for higher expense periods.

Step 6: The Totals – Budgeting’s Bottom Line

Now it’s time to put that budget to work. Total your revenue and expenses by month and year to know where the business is and where it can go.

The first totals you need to know are your monthly revenue. Insert the SUM formula into the cells at the bottom of each of the monthly revenue columns. Use it to calculate the total of all the cells above. Now you know what you’re earning every 30 days.

The next totals you need are your expenses. Repeat the same process for the expenses columns of your business budget template. That’s your monthly “nut.”

Now let’s put that same SUM formula into all the cells in the Annual Totals column at the end of your spreadsheet. This shows you the same information about revenue and expenses, row by row, for the year. Don’t forget to make sure you total that column at the bottom, too.

Finally, you need a row at the bottom that subtracts the total expenses row from the total revenue row. This is called Net Revenue, and it’s your business’ bottom line.

Let’s look at the bottom line and make some decisions. It is called “the bottom line” because it is the ultimate outcome of your business finances, whether positive or negative.

Step 7: Using Your Business Budget

Now that you know your numbers, this is where you can use your brainpower and newfound knowledge of your company. The next step is planning for the future and making some educated guesses. Expenses will likely go up every year, and hopefully, revenue will as well. You need to add any anticipated price increases to your monthly contract numbers.

For example, if the Smith contract goes up by 2%, that’s $100. Make sure the row with the Smith revenue reflects that and any other anticipated increases. Do this for all of your contracts.

If you don’t know your increases, a general rule of thumb is to add 10% to your annual expenses. If you know what your fixed expense increases are, use the real numbers.

You can also use this information to set goals for revenue not yet sold for next year. How much do you need to sell to ensure your revenue is more than your expenses every month?

Step 8: Phew, You’re in the Black. What Now?

If you have positive numbers at the bottom of your monthly total columns, congratulations! You’ve made a profit. If you have negative numbers, you have a deficit or overspent your income.

Your goal is to make a profit or at least break even. Take time to look back over your last year’s actual expenses and what you’ve budgeted for the new year. Think. Do any of your numbers seem out of touch with reality? Look for the places where you can cut back.

For example, let’s say you recently spent $500 a month you spend on office supplies? Are these things you WANT or things the business actually needs?

When you start making a profit, it is tempting to increase your paycheck. Be purposeful about where your money is going and how it is working for you. Every dime you take out of your business is money, not going toward business goals. Assess your personal finances, and if you don’t actually need more money, don’t do it.

Step 9: Making a Profit – The Fun Part

Once you’re making a profit and have been realistic about your expenses for next year, it’s time to add a budget line for savings and funding your dreams. Determine a set amount of your profits to go into that savings row for every month.

Do you need a new office printer or copier?
Do you have an adequate emergency fund?
Do you have a marketing budget?

WOW! Now you are on the way to saving for future business goals.

Step 10: Keeping Your Budget Alive

As you track your income and expenses over the coming year, look at your finances monthly. Most accounting programs offer a report (Profit & Loss) to help you see the differences between actual expenses and what you budgeted for. Are you over, under, or right on target? If you are over budget, look at why and how you can adjust.

You had the dreams and the chutzpah to start a business. You created this fantastic opportunity for yourself. Budgeting puts you in control of your resources and gives you the confidence to go after your dreams. Financial knowledge is power. It is a gift you give to yourself.

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