Budgeting Basics: How To Ensure That Your Business Dreams Don’t Leave You In A Downward Financial Spiral

Credit card bills, loans, taxes - finances can be overwhelming, especially when you’re a small business owner. With all the responsibilities of running a business on your plate, your finances can easily take the back burner. Creating a strong and reliable budget can help prioritize the financial health of your business and allow you to reach your financial goals. Now that all sounds great, but where do you start? Keep reading as we go over the basics of business budgeting and how you can get off on the right foot!

What is a business budget? 

Put simply, a business budget covers all of the revenue and expenses of your company over a specific period of time. This includes everything from employee salaries and marketing costs to office equipment and rent.

Your budget should also drive many of your important business decisions. For example, hiring employees, increasing marketing or purchasing equipment. Every purchase made for your business should keep your budget in mind – without a strong financial plan to support your various expenses, you run the risk of a downward financial spiral.

Businesses often use certain types of budgets to suit their operational needs. For example, a cash flow budget, which shows a company’s cash inflow and outflow over a certain period, is used to assess if the business has enough cash to operate. Each type of budget can also use its own method. To learn more about the different budgeting methods used by small businesses, stay tuned for next week’s blog post.

How does a budget help your business? 

To prevent financial troubles, a budget helps your business in various ways:

• Reduces the likelihood of overspending

• Allows you to track your progress and set realistic financial goals

• Highlights problems and allows them to be easily identified 

• Getting financing will be easier because you already have a plan in place

What is included in a business budget? 

To create a business budget, you need to list your business’ fixed and variable costs on a monthly basis and allocate funds that align with your goals. 

Most businesses have fixed costs which are business expenses that are not dependent on the amounts of goods or services produced by a company. For example: 

• Building or office costs

• Loan payments

• Insurance

• Equipment (Ex. machinery, computers, etc.)

• Payroll

• Utilities 

Businesses also have variable costs which are costs that change depending on the level of output or sales. For example: 

• Raw materials for products 

• Packaging costs

• Maintenance and repairs for equipment 

It is important to be realistic when considering your budget projections. It is particularly difficult to estimate these numbers if you are a new business since you have no previous year’s budget to help guide you. If you are having a hard time calculating your costs, it’s a good idea to be conservative by overestimating your expenses and underestimating your revenue.

Taking all that into account, business budgeting is no small feat and developing a budget can be tricky. Finding the best method that works for you and your business can be hard without a lot of experience. Thankfully you don’t have to do this alone and there are financial professionals available to help you. At STEPS, we offer small businesses financial assistance services that can help you organize your budget like a pro. Learn more on about our services on our home page or send us a message on our contact page.