When you’re starting a business, it’s important to have a budget in place so you can track your expenses and make sure you’re not overspending. Creating a budget is not always easy, but it’s definitely worth the effort. In this blog post, we’ll discuss some of the key things you need to know when creating a business budget. We’ll also provide some tips for how to stick to your budget once it is in place. So if you’re ready to get started, keep reading!
Maybe you want to make sure that your money is going where it needs to go, or maybe you want to save up for a special purpose. Whatever the reason, creating a budget can help you stay on track with your finances. This means that you’ll know exactly how much money your business has each month and what you can spend it on.
There are many things you need to consider when creating a budget for your business, especially if you want it to be successful. Let’s explore the steps needed before you can start creating your own budget and the benefits that come from doing so. We’ll also go over some of the most common mistakes people make and show you some resources that’ll help with the process.
Common Mistakes
- The most common challenge with creating a business budget is that you don’t know where to start. This can seem daunting, but it’s important to have a plan in order to keep your finances in check.
- Another challenge people face is tracking their spending habits. It’s not always easy to stay on budget when you’re not keeping track of what you’re spending your money on.
- Finally, people often find it difficult to make adjustments as needed. If your budget isn’t working for you, it’s important to be able to change it up so you can continue to achieve your financial goals.
It can be tough to stay on track with your finances, especially when you’re not sure where to start. That’s why we’ve put together this guide on how to create a business budget – so you can finally get your finances in order. So don’t worry – creating a budget doesn’t have to be hard! Just follow these simple steps and you’ll be good to go.
1. Start by listing your monthly income and expenses
It’s critical to list your monthly income and expenses so you have a clear understanding of where your business is spending money. This information will help you create a budget that works for you and your business. When you’re creating a budget, it’s important to be realistic about what you can afford. It’s also necessary, to be honest about what you’re spending your money on. If you’re not tracking your expenses, it’s easy to overspend without realizing it.
When you have a clear picture of your monthly income and expenses, it’s much easier to create a budget that meets your needs. So take some time to sit down and list everything out!
Monthly Income
Any money that your business brings in is considered business income. It’s vital to track all of this income so you can include it in your budget. This will help you stay on track with your financial goals and ensure that your budget is accurate.
This could include Revenue from Products or Services, Interest/Dividends, Royalties, Rental Income, Commissions, or Other Income.
Monthly Expenses
A business expense is anything that your business spends money on in order to make a profit.
Some common expenses include Rent, Employee Salaries and Benefits, Utilities, Dining, Entertainment, Office Supplies, Software, Travel, Transportation (car payments, gasoline, bus fare, etc.), Advertising and marketing expenses, Insurance (business insurance, health insurance, life insurance, pet insurance), Phone/Internet, Taxes (income tax, property tax, sales tax), Debts (credit card payments, loans) and Other costs associated with running your business.
2. Create a budget for each category
When creating your business budget, break everything down into categories (this will help you when creating your chart of accounts). This will help you stay organized and ensure that your budget is accurate. It’s also helpful to think about what you want your budget to accomplish. For example, are you trying to reduce your business expenses, or are you looking to allocate more towards salaries? Thinking about your business goals ahead of time can help make the budgeting process easier.
3. Track your spending habits
In order to stay on track with your budget, it’s necessary to monitor your spending habits. This way, you can make adjustments as needed. There are a few different ways to track your spending:
Previous bank and credit card statements:
This is a superb way to get an overview of your spending habits over a period of time. Simply gather your bank and/or credit card statements for the past few months and review them. Assign your categories to each line item. This will help you get an understanding of your average monthly spending in each category.
If you already have accounting software in place, like Xero or Quickbooks, you can take a look at your P&L from the last quarter to get an idea of where your money was spent. If you don’t have access to one (read our previous post as to why this is a red flag), you can ask your bookkeeper or accountant to provide you with this reporting. This leads to our next point.
Online budgeting and accounting softwares:
There are a number of awesome online tools that can help you track your spending, like Xero, Quickbooks Online, Float Cashflow, Futrli. These tools connect to your bank and credit card accounts, so you can see all of your transactions, expenses, and income, in one place. This makes it easy to assign your categories and track your progress on a monthly basis.
Spreadsheets:
If you’re not a fan of online budgeting tools, you can always use a spreadsheet to track your spending. This is a great option if you want more control over your data. Simply create a table with the following headings: Date, Description, Category, Amount. Then, list each of your transactions under the corresponding headings.
This route is ok, but you’ll need to categorize all of your transactions by hand which can be time-consuming. And you’re more likely to abandon this in a short period of time.
4. Making Adjustments as Needed
Making adjustments to your budget is a necessary part of the process. If your services change, your spending habits change, or if you need to allocate more money to a specific category, you’ll need to make adjustments. This can be done by either increasing or decreasing the budget for that category.
If you’re having trouble sticking to your budget, or if it’s not accomplishing your goals, don’t be afraid to make changes. It’s essential that your budget works for you, and that it’s realistic. Don’t be afraid to experiment until you find a system that works best for your business.
For businesses, it is strongly encouraged (we’d say required but to each their own) to have accounting software in place when creating your budget. This will allow you to compare your budget to your actuals monthly, quarterly, or annually. Remember this is just a budget and it is a guide to keep you on track with your business goals.
5. Repeat this process and track your goals
Monthly or Quarterly
Take a look at your budget and compare it to your actual income and expenses. This will help you identify any discrepancies help you understand how you’re doing year-to-date, and identify any areas that may need attention.
Annually
Compare your budget to your actuals from the previous year. Make any adjustments in line with your annual planning. This could include new business revenue or new hires!
Next Steps
Creating and following a business budget is an essential part of financial planning for any business. For more advice on budgeting and financial planning, be sure to check out our other blog posts. And if you’re looking for more in-depth help with your finances, please contact us to speak with one of our qualified bookkeepers. We would be happy to assist you!