By Jessica Thiefels
Budgeting is just as important for your business as it is in your personal life. You use your personal budget to track regular spending, assess your ability to save, and plan future expenses—a budget can help you do all these things for your business as well.
You may be thinking: I already know my expenses and monthly income, so I don’t need a business budget. If that’s your mindset, you’re wrong.
“Certain costs are contingent on/predicated by other things in the business,” Fraim says. “For example, a restaurant can’t project they will sell $20,000 worth of food but have it only cost them $2,000—that’s not a realistic percentage for cost of goods sold. A budget, then, allows people to adjust those expenses accordingly.”
It’s important to remember that your business budget doesn’t need to be fancy or extensive, especially if you’re starting a small business from your home. The following tools, ideas, and tips will help you establish your first business budget with minimal stress, opening your eyes to the financial health of your business.
An Open Mind
Keeping an open mind as you start to run your numbers the first time is critical to avoiding disappointment and stress:
“Oftentimes, the figures on the budget are less sunny and wonderful than the business owner had in mind,” Fraim explains. “This reality check can be a bit tough to swallow, but it’s much better to deal with it (and be able to adjust) before decisions are made and money is spent rather than after.”
Your first business budget creates a foundation for future business and financial success. If the numbers don’t look as good as you hoped, take a deep breath, and focus on a plan moving forward.
To create a budget, you’ll need to collect all the important data that will tell the story of your business’s financial well-being. Freshbooks recommends following these steps:
- Tally your income sources: From sales, royalties and any other passive income.
- Determine fixed costs: This includes monthly costs, like office space rent, subscription payments, etc.
- List variable expenses: Meaning, expenses that you don’t deal with every month, like freelancers or contractors that you hire for specific projects.
- Predict one-time purchases: This would include planned equipment purchases in addition to anything unexpected, like replacing a broken laptop.
The Right Tools
If you don’t have a head for numbers, there’s technology to make the budgeting process easier. Now that you’ve done the hard work—getting the numbers organized—you have to find the best tool for calculating and/or tracking your budget. Here are a few ideas to consider:
For: Small, home-based business with minimal overhead and income.
This basic tool requires just two numbers—money in and money out—to calculate total savings or debt for that month or quarter, along with what percentage of your income results in savings or debt.
For: Busy entrepreneurs with minimal business income and expenses, but a very specific budget goal.
Wally is a great app for glance-and-go budget tracking, and happens to be the #1 budgeting app in 22 countries. Rather than simply telling you what you’ve saved or overspent that month, Wally allows you to track expenses with a simple and intuitive interface.
Use categories to track spending—i.e., restaurants/food, office supplies, energy costs—and check in at any time to see daily and monthly remaining budget on your home dashboard.
For: Businesses with high cash flow, a wide variety of expenses, and companies that are looking for investors in order to scale to the next level.
This paid platform ($11.99 monthly on the annual plan) is perfect for small businesses looking to reach the next level. Not only does it come with built-in, investor-ready business plans, but it syncs with QuickBooks Online and Xero, so you can seamlessly integrate every platform that you use for financial planning. Check daily reports, automatically send yourself updates, and much more.
Whether you’re a brand-new startup or ready to expand a growing business, a business budget is critical for your success. Slowly, you’ll see profits grow and unexpected expenses will become less burdensome as you’re able to plan ahead more effectively. Use these tips and tools to get your first business budget in order so you can take your business to the next level.
Jessica Thiefels has been writing for more than 10 years and is currently a content marketing consultant and small business owner. She’s been part of a growing startup for 2.5 years, where she continues to learn about running businesses and being resourceful. She’s been featured on Forbes and Business Insider, and has written for StartupNation, Virgin, Manta, SoFI, and more. Follow her on Twitter @Jlsander07 and connect on LinkedIn.