As a small business owner, one of the most important things you can do is ensure that you have a good budget for your company. Many people start businesses because they have a dream of what their service or product can give to the world. But in order to provide these services, you have to ensure the financial health of your business. This requires attention to your business budgeting.

How much money do you need to run your business successfully? How much money does your business require to survive? What does a good budgeting process look like? How do you determine a budget period? A successful business requires a well-planned budget. If you don’t have a budget, then you won’t know if you are spending too much or too little. A well-planned budget should also keep both short-term expenses and long-term goals in mind.

Here are the top budgeting questions that every small business should have:

1. Do you have a budget for your small business?

This might seem like a silly question, but it really is the most important one to start with. If you don’t have a budget and aren’t keeping track of what is coming in and going out of your business, then you have no clear picture of the financial health of your company. This could make for some uncomfortable surprises when you start digging into the numbers.

A budget is a roadmap for your company, so whether you are just thinking about starting a business, you’ve got some side hustles going, or you have a full-time business, you need to figure out a budget so that you know where your company is headed financially. You can’t effectively plan for business growth without knowing where your money is going. 

2. What should be included in your small business budget?

When you are starting out as a small business, it can be hard to know how to make a reasonable and realistic budget. You may have significant start-up costs, or you may be able to hit the ground running with just your laptop. Remember that a budget is your plan to understand and control your finances, ensure that you have enough cash flow to pay your bills, and plan ahead for the future of your small business so that you can make confident financial decisions.

Regardless of industry or how you set up your business, you need to have a solid budgeting process in place. A standard budget should include the following:

• Cash flow projections: your cash budget allows you to project your cash position on a month-by-month basis. 
• Costs: for a typical business, your costs can be broken down further into three different categories:
  • Fixed costs: these can include salary, rent, and financing costs
  • Variable costs: these can be inconsistent but should be accounted for, and could include things like overtime pay for staff
  • One-time capital costs: This could include the purchase of computers, equipment, a business location, or other one-time capital expenses.
• Revenue: these are current sales or other income and can also include a forecast based on sales history and how you expect your small business to perform in the future.
  

3.What are your regular expenditures, and do you have significant capital expenditures coming up in the fiscal year?

Budgeting well involves anticipating both your regular expenses and big, unexpected, or one-time expenses that may come up in the fiscal year. When you are working on your budget, think about expenses that you need to plan for in advance. It can be all too easy to just think about your regular, month-to-month expenses, but your actual expenditures are also going to include one-time, capital, or unexpected expenses, so you need to plan accordingly.

Is there equipment or technology that will need upgrading or replacing? Do you have a peak sales season that will require you to purchase more inventory in advance? Are you planning to move into a brick-and-mortar space? Think about the unique aspects of your small business that may require significant capital this year, and plan ahead to make sure your business stays on track financially.

4. What are your projected sales for the next quarter and through the end of the fiscal year?

Using both sales and expenditure forecasts can help you project your profit margin for the next 12 months, which will allow you to make smart, fiscally sound business decisions. If you want to grow your business, you’ll need to know what your profit margin is so that you can wisely invest in new products, services, marketing campaigns, or technology. Using both sales and expenditure forecasts allows you to see how much money you spend on different items. By knowing how much you spend on certain items, you can plan ahead and save money.

5. How often should you review your budget?

Let’s say you have done all of the above. You have your budget and projections and business plan, you have a good idea of what the coming fiscal year will look like, so you’re done, right? Well, not really. Budgets aren’t a one-and-done item that you can check off your to-do list forever. They need to be reviewed and updated regularly to ensure that what you laid out in your budget actually matches the reality of where you are spending and making money with your small business. This doesn’t mean you need to go over it with a fine-tooth comb every day; that wouldn’t be an efficient use of your time. Instead, your budgeting process should include time to review your budget at least once a month, with a more in-depth look at your annual budget a few times a year to make sure that you are meeting your financial goals. If you are not meeting your goals, then you need to adjust your budget accordingly and maybe revisit the strategic plan for your small business.

Working with an experienced bookkeeper can help make your budgeting easier. Sound Accounts works with businesses of all sizes and we offer bookkeeping, licensing, payroll, quarterly reports, office management, and notary services 100% remotely. Let us keep your accounts safe and sound so you can focus on your business. 

For some answers to common business budgeting questions, check our our frequently asked questions here:

FAQ’s

What is a small business budget?

Like any other budget, a small business budget is a document that helps you identify your financial needs. It also serves as a tool to help you manage your finances. Your budget should include three main categories: income, expense, and cash flow.

How do I set up my small business budget?

The first step is to determine what your monthly income is going to be and what your monthly expenses will be. Then, you’ll add up these two numbers to get your monthly net income. These may just be guesstimates when you are first starting out as a new business owner, but even having a general idea can help you make good budgeting decisions when you are just starting out.

How often should I review my small business budget?

Budgeting is an ongoing process. You should review your budget at least monthly to ensure that your small business finances are on track. You should also take time quarterly to review it more carefully and plan for big expenses, capital improvements, or peak customer seasons that may come up in the fiscal year.