When it comes to starting and running a business, there’s so much to think about: making a business plan, having a solid elevator pitch, providing excellent customer service to keep those customers coming back, and making sure the product or service you offer is the best of the best.
But that’s just the fun stuff. Unless you’re a numbers person, the business side of running a business can be a bit . . . boring. But no matter how you feel about numbers, you’ve got to make sure you have more money coming in than you have going out. Not to mention keeping the lights on, the website up, and the doors open. So how in the world are you supposed to keep track of it all? Create a business budget.
John Maxwell said it best: “A budget is telling your money where to go instead of where it went.” You don’t want to get to the end of the month (every month) and wonder how you’ll keep the doors open.
What’s a Business Budget?
If a regular budget is a plan for how you’re going to spend your money this week (or month, or year—cue the Friends theme song), then a business budget is a plan for how you think you’re going to spend money this month, next month, this quarter and the coming year.
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If you’re a brand-new business owner, remember to give yourself time to work out the kinks. Just like with a household budget, it takes two to three months of budgeting to really see what areas you’re overspending and what areas you might need to rethink. Plus, if your business is newer, your first few budgets will be made up of a bunch of guesses until you start seeing patterns in what comes in and what goes out. But don’t worry—you’ll learn and adjust as you go.
And after you’ve been in business for a few years, your guesses will become more and more educated. Remember, all you’re doing with a budget is forecasting. You’re anticipating what’s going to happen in the near future with expenses, revenues, and your profits.
“You never outgrow, outlearn or outearn the need to do a budget.” — Christy Wright
Why Do I Need to Budget for My Business?
You could say that starting or keeping your business budget is important, but here are a few numbers to back it up:
There are 31.7 million small businesses in the United States.1 Yup—that means over 30 million business owners have to figure out how to keep their doors open, keep money coming in, and keep a regular budget. But not all of these businesses survive their first year. In fact, 32.4% of businesses that opened from 1994 to 2018 had to close up shop within their first two years.2 And we’re willing to bet that not keeping a budget is one of the top reasons they fail.
Many businesses like to call it a “cash-flow” problem. You could say that again. Just like if you’re constantly living paycheck to paycheck with your personal expenses, you’re always going to have “cash-flow problems” without the proper planning. It means you don’t have enough money coming in or you have too much money going out. That’s why it’s so important to do your business budget every single month. Not only that but you’ll want to come back to it often to adjust as you go. Keeping a budget will help you ensure that you make it past two years and keep those “cash-flow” issues at bay.
How to Create a Business Budget
Listen: Creating a budget for your business doesn’t have to be complicated. But in order to win, you’ve got to do it—and do it often. A good rule of thumb for budgeting, no matter if it’s business or personal, is to do your budget every single month (before the month begins).
Here are some important things to remember as you’re working through your budget:
1. Keep things separate.
Make sure you open a separate account for your business. Things always get messy when you mix your personal funds with your business. That’s why it’s smart to keep it clean with a separate account.
2. Don’t worry if you don’t have exact numbers.
Unless you’ve been in business for many years, the odds of you knowing exactly how much you’re going to be making each month are quite slim. Do your budget based off of what you need to make or your projections of how much you think you can make. Remember: For the first year or two, you’re budgeting off of an educated guess.
3. Don’t give up.
When you’re new to budgeting, it can be frustrating when you mess up, guess incorrectly or just blow it altogether. Don’t give up. It takes a few months to get the kinks worked out. So keep trying, keep budgeting and keep coming back to it. It’ll get better—promise.
Now for the fun part:
Like we said before, creating your business budget doesn’t have to be super complicated. Follow these simple steps and you’ll have done your very first budget. (Psst: You can download Christy Wright’s free resource, Budgeting Basics for Your Business, here.)
- Start with your revenue. Write down all your income for the upcoming month (no amount is too small), and be specific. Once you’ve listed everything, add up the numbers and circle the total. We’ll come back to it later.
- List out all your expenses. You may not know every single expense coming for the month, but do your best to forecast how you’re going to be spending money. This usually includes:
- Marketing (website, ads)
- Materials or supplies
- Office supplies and postage
- Travel for training or conventions
- Total up all your expenses.
- Now, you’ll take your total revenue and subtract your total expenses. The number you end up with is called your gross profit.
- Subtract taxes. (Usually, this is around 25%.) Now you’re left with your net profit.
- Subtract your business savings, or any money you want to invest back into your business, from your net profit.
- What you have left is your salary.
Congrats—you just made your first business budget. Keep this in a place that you’ll see on a daily basis. Feel free to make adjustments as you go. Remember, the more you do this every month, the easier it will get.
If you want to take a deep dive into your business and need some help creating a detailed business budget, check out our SmartVestor Pros. We’ll connect you with a local financial professional in your area that will help you create a customized plan, learn how to do a business budget, and start winning this year.
And if you’re looking for someone to help you with your business taxes or even get all the numbers squared away, we can help with that too. Our recommended (and amazing) Endorsed Local Providers (ELPs) are top notch. Find one in your area today.