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Building your business budget

November 27, 2023 | 5 min read

In this article

  • Why building a business budget is important: It’s one of the most important factors in running a business.
  • Where to start: Learn to allocate funds and track business expenses.
  • Step-by-step instructions: Make a spreadsheet for your business to help make informed choices for growth.
  • When to update your budget? Monthly.
  • Other resources: Master budgeting to enhance financial stability with our additional resources.

Learn how to effectively create, manage, and utilize a business budget, making informed financial decisions and boosting your company's growth and stability.

As a small business owner, creating a budget and effectively managing it are two key factors in the success of your business. Budgeting accomplishes the following:

  • Sets targets for revenue and spending so that business operations stay accountable and profit margins enable growth
  • Funds strategic initiatives ranging from marketing campaigns to physical needs, such as facilities and equipment
  • Helps you save money by preventing unnecessary spending
  • Gives teams a clear idea of what they have to work with
  • Enables a business to expand more efficiently

Constant budget monitoring helps a business stay on track and quickly adapt to changing needs. Thankfully, even business novices can create and update a budget using software and other budgeting resources.

How to create your small business budget

Some small business owners will use a simple Excel spreadsheet to get started. Others use digital tools explicitly designed to track business expenses and credits. (Don’t worry, we’ll talk about those tools a little bit later.)

Start by breaking down estimated expenses and revenue figures you anticipate you'll need to meet in order to reach your profit goal. If you've been in business for some time, you already have a clear idea of the revenue you can work with. If you have a relatively new company, you can make estimates based on your most recent banking transactions.

Include the following in your small business budget:

  • Yearly and monthly forecasts of anticipated income sources
  • Yearly and monthly estimates of fixed and variable expenses
  • Yearly and monthly profit goals
  • Records of past expenses and income sources

Once you have completed the initial planning and have established what you want (and need) to include in your budget, you can use the following six steps to help you create a budget that will work for your business.

Step-by-step instructions to create your business budget spreadsheet:

  • Determine your monthly/yearly revenue
  • Subtract fixed costs
  • Factor in variable expenses
  • Set aside an amount for unexpected costs
  • Create a profit and loss statement after each month in business
  • Adjust your future budget accordingly

Some of the fixed expenses you can expect to include in a small business budget are:

  • Personnel costs
  • Facilities and equipment costs
  • Materials
  • Insurance and taxes

Variable costs may include:

  • Travel
  • Client relations
  • Consultant fees
  • Equipment rentals

Income sources include:

  • Sales
  • Referral fees
  • Renewable service contracts
  • Royalties

Getting a clear picture of your expenses and your profits enables you to see where adjustments need to be made. Include one-time purchases such as computers or furniture under variable costs and try to set aside at least 20 percent of your budget for unexpected expenses.

When to update your small business budget

The Small Business Administration (SBA) recommends updating your budget every month. Frequent budget monitoring allows your business to respond to unexpected changes; for example, if a client decreases the amount of business they do with you.

Small business budgeting resources

Microsoft offers a variety of free budget templates that you can adapt to your business. There are also several software programs and apps that business owners can use to track their budgets. Some tools to check out include:

  • Workday Adaptive Planning, which provides robust financial planning, including balance sheets, cash flow plans, revenue forecasts and expense plans
  • Planning Maestro, a cloud-based budgeting and forecasting tool that includes reporting and analysis
  • Board, which provides budgeting, planning, forecasting, profitability analysis, strategy management and predictive analytics

Why go digital? Manual spreadsheets are often clunky or easy to make errors on. Digital or cloud-based budgeting solutions provide a tangible return on investment by accurately keeping you on track. Overall, a clear budget that is easy to track can help your business stay organized and show potential investors that you're accountable for spending.

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