Not too long ago, I sent out a survey to you fabulous ladies that make up the Clever Girl Entrepreneur audience and one of the biggest pain points you mentioned that you have with your business finances is around business budgeting. So today, I'm discussing how to create a simple business budget...that works.
"Just like you need a personal budget to be successful with your personal finances, you need a business budget to be successful with your business finances."
Why do you need a business budget?
Well, just like you need a personal budget to be successful with your personal finances, you need a business budget to be successful with your business finances. Your business budget basically allows you to manage your business finances properly and stay on top of your expenses.
You can make all the money in the world in your business but if you cannot manage it well, your business will fall apart. So if you don't have a business budget, you need one asap.
So how do you create a business budget?
When people think about creating a business budget, their eyes start to glaze over and they start thinking "Oh my God this is going to get complicated" but it really doesn't have to be that complicated at all. As a small business owner, the biggest things you want to track are your income and your expenses and then determine each month whether your expenses exceed your income based on your actuals and why.
I'd recommend you create your budget using a spreadsheet table. In your table, you want to list out all of your business expenses and what you expect them to be each month. Keep in mind you will have two types of expenses.
Your fixed expenses (expenses that stay the same each month) and your variable expenses (expenses that change from month to month depending on what's going in your business e.g. product or service changes) - it's ok to estimate your variable expenses based on what you think they will be.
You also want to list out all the possible ways you will earn money and how much you expect that income to be each month so product sales, service sales etc. Once you've listed out your expected expenses and expected income, you basically have your budget in place. You then want to make sure you include room to track your actuals based on your budget for that month.
Keep in mind that it's a really good idea to lay this all out so you fully understand your business financial picture and it costs you nothing to do this on your own. There are also several paid cloud accounting tools out there that can help you as your business grows and of course, there's my automated Excel spreadsheet tool to help you out as well too (keep reading)!
How often do I need to create and track my business budget?
You should plan to create a budget for your business each month (or several months in advance) and then track your actuals against the budget you've created taking note of any variances or reasons why, your budget came in over or under.
Tip: Your budget helps you plan what to expect in terms of your income and your expenses and in a sense, is a way of doing simple short term financial forecasting. So let's say you create a business budget for the next 3 months, you now have a 3 month money forecast in place for your business in terms of what your expenses will be and what your expected income will be.
- How to be successful managing your business finances
- 5 Key things every serious business owner should have as part of their business model
- Understanding your business expenses as a new business owner
- 9 Financial Mistakes to avoid as a business owner
- How to pay yourself a salary as a small business owner
- Ways to fund your business