expenses budget business plan

How to Create an Expense Budget

4 min. read

Updated October 27, 2023

One of the fundamentals of your financial plan and the start of good business management is managing expenses. That starts with an expense budget. Set your budget as a goal, then review and revise often to stay on track. Being right on budget is usually good, but good management takes the regular review to check on the timing, efficiency, and results of what your business spends.

For the record, we could call it an expense forecast, or projected expenses. Those are the same thing. Regardless of what you call it when you combine it with projected sales and costs, you have what you need to project your profit or loss.

• The key types of expenses in business spending

Expenses make up just one of the three common types of spending in a normal business.

Expenses  mostly include operating expenses, like rent, utilities, advertising, and payroll. That’s what I’m talking about in this article.

Direct costs  are another type of spending—another way to say it is the costs of goods sold (COGS), or what you spend on what you sell. For example, the COGS for a bookstore are the costs of buying the books it resells to its customers. Those go in your  sales forecast .  

Repaying debts and purchasing assets  is the third type of spending. These affect your  cash flow  (the amount of real cash you have on hand to pay bills) and your balance sheet, but not your profits—which are left over after you pay your bills.

• Your expense budget

It’s all about educated guessing.

Don’t expect to accurately guess the future. Do use your experience, educated guessing, a bit of research, and common sense to estimate expenses in line with sales and costs and your planned activities.

The math is simple

The illustration here shows a sample expense budget from a soup delivery subscription plan we use as an example.

The math and the logic is simple. Make the rows match your accounting as much as possible. Set timeframes and estimate what expenses will be for each of the next 12 months, and then for the following two years as estimated annual totals.

In the example, the two owners know their business. As they develop their budget, they have a good idea of what they pay for kitchen time, Facebook ads, commissions, office equipment, and so on.

And if you don’t know these numbers for your business, find out. If you don’t know rents, talk to a broker, see some locations, and estimate what you’ll end up paying.

Do the same for utilities, insurance, and leased equipment: Make a good list, call people, and take a good educated guess.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

Payroll and payroll taxes are operating expenses

Expenses also include payroll, wages and salaries, or compensation. They are worth a list of their own. In the case of the soup business in the example above, for payroll, they do a separate list so they can keep track. Payroll is a serious fixed cost and an obligation. Here is the payroll budget associated with the sample plan above.

Notice that the totals from the personnel plan show up in the expense budget. And you can see the estimated expense for benefits over and above the gross salary. Employee-related expenses include payroll taxes along with what they budget for health insurance and other benefits.

Don’t worry too much about depreciation

Depreciation is a special case. Traditionally, it counts as an operating expense, but a lot of businesses budget for it separately because it doesn’t actually cost money.

It’s a concept the tax code allows us to deduct as a business expense, in theory, to allow for the gradual decline in the value of an asset, or—depending on which expert you follow—to allow money to buy new assets when existing assets become obsolete.

The argument for including it in the expenses is that it gives a more accurate picture of profits. And many people separate depreciation from the other expenses so they can calculate EBITDA, which is earnings before interest, taxes, depreciation, and amortization (which is like depreciation, but for intangible assets).

Bottom line:  Include it or not; it’s your choice.

Yes, interest expense is an expense

Because interest is also excluded from EBITDA, many people also exclude it from operating expenses. They list it separately, along with depreciation, to make the EBITDA calculation easier. I say you can do that either way, it doesn’t matter, as long as you include the interest expense in your budget. Because, unlike depreciation, interest does cost money.

• Remember the underlying goal

The purpose of the budget is to help you make good decisions.

Set expenses to align with your strategy and tactics, so you do what works best for your long-term progress. Match your accounting categories as much as possible, so you can track later. Keep track of assumptions so when things come out different from the plan —and they always do—you can adjust quickly.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

Related Articles

6 Min. Read

How to Forecast Sales for a Subscription Business

5 Min. Read

9 Common Mistakes with Business Financial Projections

How to Improve the Accuracy of Financial Forecasts

How to Create a Profit and Loss Forecast

The LivePlan Newsletter

Become a smarter, more strategic entrepreneur.

Your first monthly newsetter will be delivered soon..

Unsubscribe anytime. Privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

Free business budget templates (PDF/Excel) + how to create

By Ken Boyd

September 8, 2023

Running your own business presents unique opportunities for you to be your own boss, bring your entrepreneurial vision to life, and direct your financial future. But to avoid being among the 20% of small businesses that fail within their first year, you’ll want to take every precaution behind the scenes.

Creating a business budget is an excellent first step for any new business owner. By taking a closer look at your assets, expenses, and financial goals, you can craft a better plan for the future of your booming business. And ideally, you can reap some of the monetary benefits.

Let’s take a closer look at how to create a business budget and discuss the benefits of budgeting. You will even find some helpful resources and a business budget template we hope you can leverage moving forward. With the right tools and processes, you can use business budgeting to your advantage.

• What is a business budget?

• Benefits of a budget for your business

• What’s included in a business budget?

• How to create a budget for a business

• Small business budget customization

• Budgeting best practices for business

 • Free business budget templates

Printable business budget template

Business budget template for excel.

• Business budgeting with QuickBooks

Stay in control of your cash flow

Explore the many ways to manage your cash flow with QuickBooks

What is a business budget?

A business budget is an outline of an organization’s revenue, expenses, and profit over a period of time—generally monthly, quarterly, or annually. A good business budget assigns a purpose to every dollar your business earns. For instance, some money might go toward bills or business growth. Others will help fund daily operational expenses and take-home pay for yourself and your staff.

Solid business budget planning will provide a road map for spending and earning. It’ll create a lens into your organization’s financial future and facilitate better decisions all around. Ready to get your business idea off the ground? You’ll need to consider startup costs. Wondering if you can or should purchase new equipment this year? Refer to your business budget plan.

Maybe you’re looking for ways to cut down on expenses. Your business budget can present a view of your financial health, including where you’re spending money and where you might benefit from cutting back. With better foresight, you can cultivate stronger business performance and improve earnings from the last quarter or the last year.

Benefits of a budget for your business

“A business budget is a financial road map to success, a vision of where you want to take your business for the upcoming 12 months,” the FDIC says . What’s more, research has suggested that business budgets offer the following benefits:

• They give business owners more freedom to run their organizations with confidence.
• They allow business owners to identify cash flow and spending problems.
• They empower business owners to have a greater sense of control and insight when dealing with financial challenges.
• They help business owners and decision-makers predict cash flow and identify trends.
• They demonstrate positive money management to lenders and investors.
• They give you the chance to identify and rectify problem areas quickly.

Bottom line: Consider a detailed budget one of your key business needs.

What’s included in a business budget?

A business budget takes into account an organization’s total revenue and expenses to reveal net profit (or loss). The FDIC says the best business budgets comprise the “nuts and bolts” of everyday revenue and expenses like:

• Average order amount
• Number of product orders per month
• Billable hours
• Average payroll costs
• Material expenses
• Rent, mortgage, and utilities

When building a business budget, business owners should bear in mind that output depends on input. Make sure you’re collecting accurate data points whenever you’re dealing with your business’s finances. A simple mathematical error or typo can lead to confusion or, worse, uninformed financial decisions.

How to create a budget for a business

Now you know what a business budget is, why it’s important, and the essential components. Let’s now take a look at the steps you need to take to create one.

1. Calculate all forms of income

Whether you’re optimizing your personal spending or building a business budget, your first step should be aggregating all of your forms of income. Your net income determines how much you can afford to spend. It also indicates your take-home pay and whether your business performance is growing or stagnating.

To find out how much money your business is bringing in, refer to your profit and loss statements. Depending on your business model, you may have several income sources, so be sure to include any and all revenue streams in this section.

2. Subtract your fixed expenses

Once you’ve added all of your business’s income together, you can subtract your fixed costs. Fixed costs are expenses that remain consistent throughout the year. Whether you pay bills monthly, weekly, or annually, you can expect to spend a set amount of dollars on each expense. These costs are easy to predict, so they’re easy to work into your budget. The one-off expenses, or variable costs? Not so much—more on that in a minute.

Examples of fixed expenses include:

• Commercial rent or mortgage
• Operational utilities
• Loan payments
• Insurance bills
• Employee salaries

Once you’ve tallied up your fixed expenses, you can subtract that number from the total income you calculated in step 1.

3. Subtract your variable expenses

In addition to your fixed costs, you might anticipate monthly operating expenses that may not always be the same amount. These variable expenses may be harder to predict, but you can refer to old receipts and invoices to estimate them.

Examples of variable expenses include:

• Material costs
• Commissions
• Billable staff wages (freelancers, outsourced work, etc.)

After identifying your variable expenses and estimating how much they cost each month, subtract the amount from your income.

4. Prepare for emergency and one-time expenses

Life is full of unexpected circumstances. As a business owner, you’re likely familiar with unexpected expenses. New equipment, hiring expenses, and unplanned events can add up, so it’s wise to plan ahead as much as you can.

You can’t predict when you’ll need to pay for an emergency expense or how much it might cost, but you can set aside a cash reserve to lessen the burden.

5. Create a profit and loss statement

You’ve accounted for your income and fixed, variable, and emergency expenses. Now you can better understand your business finances by creating a profit and loss (P&L) statement. A P&L statement is a high-level overview that shows whether your organization is profitable or in the red.

When you add up all of your income then subtract your total expenses, you should have a positive or negative number. A positive number indicates that you’re in the black and, therefore, making money. A negative number indicates that you’re in the red and, therefore, burning a hole in your pocket.

Your P&L statement serves as a baseline for creating your business budget. You can access your profit and loss statement, track trends, monitor invoices, and more from your QuickBooks account.

Keep in mind that your profit and loss statement may not always show you the results you want. But with better business budgeting and forward thinking, you can set yourself up for a brighter and more profitable future.

6. Draft your business budget

After reviewing your P&L statement, you’ll have a better idea of where you’re spending your money—and if you’re spending responsibly. With this data in mind, you’re ready to draft your business budget for the next year, quarter, or month. Most businesses opt for quarterly budgets.

A basic budget outlines your expenditures and designates limits for each over a given period. This outline can help you determine whether you’re earning and spending within your abilities. With QuickBooks, you can easily glean insight into spending patterns and assess where your business stands financially.

QuickBooks has tools to help your business thrive

Track and manage your whole financial picture in one place - from bank transactions, expenses and beyond.

Small business budget customization

Every small business has a niche, workflow, and financial goals. So it’s important to remember that there’s no one-size-fits-all approach to business budgeting. As you learn how to build a business budget and experiment with the strategies you’ve learned, consider the following:

• Seasonality may affect customer buying behaviors, depending on your business type. Consider these fluctuations in profit and expenses as you plan your budget.
• If you run an e-commerce business, beware of hidden costs like shipping fees, website upgrades, and point-of-sale expenses.
• Budgeting for a startup can be especially challenging because they’re typically much more limited on data and performance history. But accurate accounting software and conservative estimates can help you improve your business budget year after year.
• If you run a service-based business, you’re working with more estimates than a product-focused business. Keep an eye on trends to make sure your budget has plenty of wiggle room.

Budgeting best practices for business 

A great business budget creates a clear connection between your day-to-day operations and financial resources. It can help you navigate tough business decisions and even help you identify areas for growth. But an effective budget doesn’t happen overnight. As you create and reflect on your business budget, keep these small business budget best practices in mind:

• Consider how every change in expenses or income will trickle down to your budget. Hiring a new employee doesn’t just mean you’re adding another salary but can also translate to changes in payroll taxes, benefits, and other expenses. Any time you adjust your business budget, consider the consequences.
• Make sure that you’re budgeting for all expense categories , including fixed, variable, and emergency expenses. Anticipating these costs can help you balance your business budget and plan ahead. You can track your business expenses effortlessly and accurately using QuickBooks.
• View your business budget as a living document. Financial circumstances change, and the unexpected happens. Your business should always be prepared to weather the storm. Review your financial statements regularly, reconsider your costs and spending, and refine your business budget as necessary.
• Set goals but avoid wishful thinking. Use your bookkeeping records to determine what might transpire over the next month, quarter, or year. But ultimately, it’s a better idea to be conservative with your budget than to expect the best-case scenario.
• Look out for ways to cut costs and create growth. As a business owner, it’s up to you to position your business for greatness. Break down your finances into areas of success and room for improvement. Spotting opportunities to improve your business finances can make your organization more profitable and sustainable in the long run.
• Keep your money organized with categories or envelopes. A business bank account that allows you to categorize or bucket your money makes it easier to stick to your budget plan and see at a glance where your finances stand. Use Envelopes in QuickBooks Money to organize your budget and hit your savings goals sooner.

Free business budget templates

If you’re just getting started with budgeting for your business, these templates are a great medium for learning the process. We invite you to create copies, download, edit, and print these business budget templates.

Use this editable and printable template to create a quick and easy budget for your business: 

Use our free Excel template to develop a budget for your business. The template uses an example budget from an imagined business, Widget Inc., to help guide you through the process of creating a business budget

How to use the Excel budget template

1. enter prior year information.

Input the year-end balance sheet and income statement into your Excel template.

Equity is the difference between assets and liabilities—the true value of your business. The $10,000 net income in the income statement increases equity in the year-end balance sheet.

2. Forecast future sales and costs

Next, we’ll make some assumptions for the upcoming year. In this example, Widget Inc.’s budget accounts for changes in sales, cost of sales, employee payroll costs, and other expenses.

Some accounting transactions, however, are unusual and cannot be included in a budget. For example, Widget Inc. had a $5,000 loss on the sale of equipment in the prior year.

Widget Inc.’s primary business is manufacturing and selling widgets, and the sale of equipment is not part of its annual budget. Accountants refer to these transactions as non-operating income and losses because day-to-day business operations don’t generate them.

3. Create a budget income statement

Widget Inc. produces a budget income statement using the assumptions in step 2. Note that the Widget Inc. budget has a line item for gain or loss on sale, other revenue . While the company may have an actual transaction in the category, this line has a zero budget.

4. Create a budgeted balance sheet using assumptions

The budgeted balance sheet includes assumptions that address each of the line items in the report. The budget provides percentage increases or decreases from the prior year, and 2 categories have no change.

5. Create a budgeted cash roll-forward for January

A cash roll-forward report lists your beginning cash balance, expected cash inflow and outflow, and your ending balance in cash for each month of the year.

The balance sheet and the income statement are financial statements , but the cash roll-forward is an informal internal report. The statement of cash flows is generated as part of your financial statements, but a cash roll-forward is more useful for budgeting purposes.

Business owners should create cash roll-forwards last because they need a cash projection for each month. Step 5 presents the cash roll-forward for January. You’ll see that the beginning of January cash balance ($10,000) is the year-end cash balance in the prior year’s balance sheet.

The majority of cash collections are from sales and the bulk of cash payments are for inventory. When a business sells inventory, the dollar amount transfers to the cost of sales, which is the largest expense in the budget. So it makes sense that the biggest cash outflow is for inventory.

Widget Inc. assumes that cash received for sales and the cash paid for inventory will be evenly distributed over 12 months. In reality, the payments will be uneven, but the cash inflows and outflows can be difficult to predict by month.

The budget also includes miscellaneous receivables collected in cash and other cash payments, such as payroll costs.

6. Budgeted cash roll-forward for February, other months

The beginning cash balance for February ($10,500) is the ending cash balance for January, and this connection applies to each month of the year. The February cash budget uses some of the same assumptions for sales and inventory purchases. The ending cash balance for February is also the March beginning cash balance.

Widget Inc. continues this same cash roll-forward process until the company has a cash budget for each month.

Business budgeting with QuickBooks

Building a business budget can feel like an overwhelming process, but it’s an essential one if you want to have an edge on the competition, maintain financial stability, and move your business forward.

QuickBooks features tools like business banking that automatically matches to your books , a business debit card integrated with your accounting software, and budget envelopes, making it easy to manage your business finances. Explore our product features to learn more.

Ken Boyd is a co-founder of AccountingEd.com and owns St. Louis Test Preparation (AccountingAccidentally.com). He provides blogs, videos, and speaking services on accounting and finance. Ken is the author of four Dummies books, including "Cost Accounting for Dummies."

Better accounting software is waiting

1. QuickBooks Money: QuickBooks Money is a standalone Intuit offering that includes QuickBooks Payments and QuickBooks Checking. Intuit accounts are subject to eligibility criteria, credit, and application approval. Banking services provided by and the QuickBooks Visa® Debit Card is issued by Green Dot Bank, Member FDIC, pursuant to license from Visa U.S.A., Inc. Visa is a registered trademark of Visa International Service Association. QuickBooks Checking Deposit Account Agreement applies. Banking services and debit card opening are subject to identity verification and approval by Green Dot Bank. Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services. For more information about Intuit Payments' money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/ . No subscription cost or monthly fees. Other fees and limits, including transaction-based fees, apply.

Envelopes: You can create up to 9 Envelopes within your primary QuickBooks Checking account. Money in Envelopes must be moved to the available balance in your primary QuickBooks Checking account before it can be used. Envelopes within your primary QuickBooks Checking account will automatically earn interest once created. At the close of each statement cycle, the interest earned on funds in your Envelopes will be credited to each Envelope in proportion to the average daily balance of each Envelope. See Deposit Account Agreement for terms and conditions. movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services. For more information about Intuit Payments' money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/ .

This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Readers should verify statements before relying on them.

We provide third-party links as a convenience and for informational purposes only. Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals. Intuit accepts no responsibility for the accuracy, legality, or content on these sites.

• Canada (English)
• Canada (French)
• United Kingdom
• Other Countries

Call Sales: 1-800-285-4854

© 2024 Intuit Inc. All rights reserved.

Intuit, QuickBooks, QB, TurboTax, Credit Karma, and Mailchimp are registered trademarks of Intuit Inc.

By accessing and using this page you agree to the Website Terms of Service.

• Wealth Management
• IT Services
• Client Login
• (847) 247-8959

  February 27, 2024

How to create a business budget: 8 simple steps.

No matter the size of your business, a business budget is vital to planning and guiding your business’s growth. By understanding the fixed expenses of a company and accounting for the ebb and flow of work, a proper business budget can help your business maintain itself through the year and create protection around unplanned expenses through well allocated funds. In this guide, we'll walk you through the process of creating a business budget, outlining essential steps to help you manage your finances effectively.

What Is a Business Budget?

A business budget is a financial plan outlining projected revenues and expenses for a business during a specific period of time (most typically a year, though there are often monthly or quarterly reexaminations). Although there are variables throughout the year, a complete and accurate budget will serve as a blueprint for businesses in managing income and expenditures, guiding decision-making processes, and ensuring financial stability. 

What Should a Business Budget Include?

A comprehensive business budget’s purpose is to provide a business a holistic view of their financial health. When looking through bank statements, take note of those expenses that reoccur throughout the year and note those—as well as those unexpected expenses your company should instead anticipate. Key components to include are:

• Revenue Forecast: Anticipated income from sales, services, or other sources after deducting costs, taxes, and other fees.
• Fixed Operating Expenses: Costs associated with running the business, such as rent, utilities, salaries, and supplies.
• Capital Expenditures: Investments in assets like equipment, machinery, or property.
• Debt Service: Payments towards loans, credit lines, or other forms of debt.
• Taxes: Estimated tax liabilities, including income tax, sales tax, and payroll taxes.
• Contingency Funds: Reserves set aside for unexpected expenses or emergencies.
• Profit Targets: Desired levels of profitability, indicating the financial performance you aim to achieve.

Why Is Budgeting Important to a Business?

Budgeting plays a crucial role in the financial management of a business for several reasons:

• Resource Allocation: Helps allocate resources efficiently to prioritize essential activities and investments.
• Financial Control: Provides a framework for monitoring and controlling expenses to prevent overspending.
• Performance Evaluation: Facilitates performance measurement against predetermined targets, enabling timely corrective actions.
• Decision Making: Guides decision-making processes by providing insights into the financial implications of various options.
• Risk Management: Identifies potential risks and allows for proactive mitigation strategies to safeguard financial stability.

How Does Budgeting Help a Business?

Effective budgeting contributes to the success and sustainability of a business in numerous ways:

• Improved Cash Flow Management: Helps maintain adequate cash reserves to meet financial obligations and fund growth initiatives.
• Enhanced Profitability: Enables businesses to identify opportunities for revenue growth and cost optimization, leading to higher profitability.
• Better Resource Utilization: Ensures optimal utilization of resources by aligning expenditures with strategic priorities and operational needs.
• Increased Financial Transparency: Provides stakeholders with a clear understanding of the company's financial health and performance.
• Long-term Planning: Facilitates long-term planning by forecasting future financial requirements and setting achievable goals.

How to Create a Business Budget

Now that we’ve gone over the importance of a business budget, it’s time to understand the steps you need to take in order to create a comprehensive plan.

Gather Financial Information

Start by compiling relevant financial data, including past income statements, balance sheets, and cash flow statements. Analyze historical trends to identify patterns and make informed projections for the upcoming period.

Determine Your Financial Goals

Define clear, measurable financial goals aligned with your business objectives. Whether it's increasing revenue, reducing costs, or improving profitability, setting specific targets will provide a roadmap for your budgeting process.

Identify Revenue Sources

Identify all potential sources of revenue, including sales, services, investments, and other income streams. Estimate the expected revenue for each source based on market trends, historical data, and sales forecasts.

Estimate Expenses

Next, list all anticipated expenses, categorizing them into fixed and variable costs. Fixed expenses, such as rent and salaries, remain constant regardless of business activity, while variable expenses, like supplies and utilities, fluctuate based on demand.

Factor in Contingencies & Emergency Funds

Allocate a portion of your budget for contingencies and emergency funds to cover unforeseen expenses or revenue shortfalls. Building a financial cushion will provide stability and resilience during challenging times.

Balance Your Budget

Balance your budget by ensuring that projected revenues exceed estimated expenses. If there's a deficit, identify areas where you can reduce costs or increase revenue to achieve equilibrium.

Monitor & Track Your Budget

Regularly monitor and track your budget against actual financial performance to identify variances and deviations. Use accounting software or spreadsheets to update your budget and make adjustments as needed to stay on course.

Review & Adjust Budget Regularly

Review your budget periodically, ideally on a quarterly or annual basis, to assess its effectiveness and relevance. Adjust your budget as necessary based on changing market conditions, business priorities, and performance trends.

Contact Mowery & Schoenfeld for Help with Business Budgeting

Creating and managing a business budget requires expertise and strategic planning. At Mowery & Schoenfeld, we specialize in helping businesses develop robust financial strategies to achieve their financial goals. Contact us today to learn how our team of experienced professionals can assist you with business budgeting and financial management. 

Accounting | How To

How To Create a Small Business Budget [+Free Template]

Published June 20, 2023

Published Jun 20, 2023

REVIEWED BY: Tim Yoder, Ph.D., CPA

WRITTEN BY: Eric Gerard Ruiz, CPA

This article is part of a larger series on Bookkeeping .

• 1. Create a Budget Process
• 2. Determine Key Assumptions in Budgeting
• 3. Create the Sales Budget
• 4. Create the Inventory and Purchases Budget
• 5. Create the COGS Budget
• 6. Create the Sales & Administrative Budget
• 7. Create the Capital Budget
• 8. Create the Cash Budget
• 9. Assemble Proforma Financial Statements

Common Problems in Budgeting

Bottom line.

Creating a business budget is an important step in planning. A small business budget starts with creating the budgeting process, the operating budgets, such as sales, inventory and purchases, cost of goods sold (COGS), and sales and administrative, and ends with the financial budgets, such as cash, capital, and proforma financial statements.

To help you get started, we’ve provided a very simplified version of a budget spreadsheet to illustrate how information from each area of your business is combined to form an annual budget. We’ll discuss how to use this spreadsheet throughout our article.

FILE TO DOWNLOAD OR INTEGRATE

FILE TO DOWNLOAD

Thank you for downloading!

Budgeting is an important subset of managerial accounting. Read our small business guide to managerial accounting and learn how managerial accounting concepts can be applied in a small business setup.

Step 1: Create a Budget Process

The budget process shows how the different departments of the business create a budget. Without a process, budgeting would be chaotic, and it would result in inefficiencies. In the budget process, you need to consider the following:

• Budget period: When are budgets created, reviewed, implemented, and evaluated against actual performance?
• Budgeting method: How are budgets created? Is it created from scratch (zero-based budgeting)? Is it based on actual results with adjustments (incremental budgeting)?
• Budget involvement: Who creates the budgets?
• Budget committee: Who oversees and approves the budgets?
• Budget manual: What are the guidelines for creating budgets?

Budget Period

The first thing to consider in the budget process is the budget period. How long should budgets be prepared? When will it be implemented? The budget period can be any time before the next business year begins. Hence, you can create next year’s budget three months prior to the end of the current year.

The crucial periods for budget planning are as follows:

• Budget preparation : The time at which managers and heads create a budget for their department.
• Budget review and approval : The time at which top management will review and approve all lower-level budgets.
• Budget implementation : The time at which all concerned parties will act upon planned activities stated in the budget. This phase runs until the effectiveness of the budget lasts.
• Budget accountability : The time at which top management will assess if the business is meeting its budgetary goals. This phase runs intermittently during the year, such as monthly, quarterly, or semiannually, especially during performance evaluation and review.

As a small business, you need not be particular about the phases. You can modify the phases depending on small business needs.

Budgeting Method

There are four different types of budgeting methods, but for small businesses, we picked only two, as they are the most appropriate for the setup:

• Zero-based budgeting : This is a budgeting technique that starts from scratch. It doesn’t use information from past budgets. Instead, departments and managers need to justify every dollar in the budget without referring to past performance or past budgeting practices.
• Incremental budgeting : This is a budgeting technique that uses actual figures from the past years and adjusts with a certain percentage. For example, if actual sales last year is $20,000, the incremental budgeted sales could be 10 percent more or $22,000.

Budget Involvement

Small businesses must consider what kind of involvement is needed during the budgeting process, given that budgets can be used to measure the performance of departments and managers. There are two kinds of budget involvement—for small businesses, authoritative budgeting is suitable if the small business owner is heavily involved in daily operations. Alternatively, participatory budgeting applies if the owner delegates decision-making to managers.

1. Authoritative budgeting

Also known as top-down budgeting, this budget involvement strategy only includes top management in the budgeting process, where operating personnel and lower-level employees have little to no say in the budget. It takes less time to create since there are fewer employees involved.

However, some operating personnel and lower-level employees may disagree with top management’s estimates in the budget. At the least, this strategy creates discord between top management and operating personnel due to conflicting views. But if prepared appropriately, authoritative budgeting reflects the business’ vision, mission, and goals better.

2. Participatory budgeting

This is also called bottom-up budgeting, and this budget involvement strategy includes operating personnel and lower-level employees in creating a budget. It is a budget co-created by everyone involved or affected by the budget being created.

It enhances the relationship between top management and operating personnel since everyone has a say in the budget. However, this strategy can take time since more employees are involved in the budgeting process. Also, some lower-level managers can use this opportunity to insert some budgetary slack so that they look good during performance.

Budget Committee

The budget committee is responsible for compiling all lower-level budgets and assembling them into one package called the master budget and reviewing and approving budgets from different departments. For small businesses, the composition of the budget committee can be the small business owners, chief executive officer (CEO), treasurer, budget coordinator, and chief accountant.

The role of the budget coordinator is to reach out to lower-level managers and communicate the wishes of the budget committee. If you’re a family-grown small business, family members, including the small business accountant or finance officer, can be committee members.

Budget Manual

The first order of business of the budget committee is to create a budget manual, which outlines the budgeting process. Lower-level managers and department heads will use the budget manual when creating lower-level budgets. The budget committee may also set specific budget formats and deadlines.

A budget manual standardizes the budgeting process—it ensures fairness and comparability among departments and managers. With this manual in place, you can prevent the instance of inserting unfamiliar line items in the budget or using different sources in forecasting budgeted figures.

The budget manual should include the following:

• Statements of budgetary purpose
• Budgetary activities, such as budget preparation, budget hearing and evaluation, budget approval, budget execution, and budget accountability
• Schedule of budgetary activities and deadlines
• Sample budgets
• Key assumptions used in budgeting

You can create a budget easily using QuickBooks Online. Its budgeting functions create budgets per account in the chart of accounts. Read our QuickBooks Online review for detailed information on our recommendation.

Step 2: Determine Key Assumptions in Budgeting

After performing the groundwork for budgeting, the next step is determining the key assumptions. These assumptions make it easy to prepare budgets since not all information is readily available until it happens. These assumptions are not arbitrary because they must be based on past experience and good business practices.

Examples of assumptions are:

• Sales forecast
• Selling price per unit
• Cost per unit
• Estimated discounts given to customers
• Estimated sales returns
• Desired ending inventory per month or quarter
• Number of raw materials used to produce one good unit
• Number of labor hours needed to produce one good unit
• Number of overhead hours (if any) needed to produce one good unit
• Inventory cost flow method used, such as first-in, first-out (FIFO), last-in, first-out (LIFO), or average cost
• Cash collection patterns
• Cash payments patterns
• Cash retention policies

Input your assumptions in the second tab of our downloadable spreadsheet. When done, all of the reports will automatically populate. It’s the quality of your assumptions that will determine if your budget is realistic. As you improve your budgeting process, you’ll come up with additional assumptions to include in the process.

Step 3: Create the Sales Budget

The sales budget is the first budget that should be prepared because almost all budgets will depend on the information in it. It is the responsibility of the sales department to forecast and create the sales budget of the company, and it is crucial that the department forecast sales reasonably using the appropriate forecasting method. Our article about sales forecasting discusses the method of sales forecasting and shows how CRM software can help.

Below is an example of the sales budget taken from our small business master budget template.

Sales budget

Step 4: Create the Inventory & Purchases Budget

There are two ways to call this budget: merchandising companies can call it inventory and purchases budget while manufacturing companies can call it production budget. However, the information shown in this budget remains the same. The inventory or production budget shows the number of units needed to meet the sales demand.

Inventory budget

The image above shows the sample inventory budget in our free template. One of our assumptions is that the business intends to keep 5% of next quarter’s sales forecast as current quarter’s ending inventory. In Q1, desired ending inventory is 500 units, which is 5% of 10,000 units of Q2’s sales forecast.

After determining the number of units needed, multiply them to the standard cost of inventory to get the total cost of inventory. The standard inventory cost is also the budgeted cost of inventory. Since some inventory prices fluctuate, setting standard costs makes it easy for us to budget.

When adding values in the total column, do not sum up the values in the beginning and desired ending inventory rows. Instead, the total beginning inventory in the total column should be the Q1 beginning inventory, while the total ending inventory should be the Q4 ending inventory.

Step 5: Create the COGS Budget

The next logical step after budgeting inventory and purchases is to determine the COGS. Through the COGS budget, we can estimate the level of COGS per quarter. This budget is necessary for preparing the proforma income statement.

Below is the COGS budget from our small business budget template:

COGS budget

Step 6: Create the Sales & Administrative Budget

The sales and administrative (S&A) budget presents the budgeted costs for sales expenses, office expenses, and administrative expenses. This is necessary for budgeting the salaries of employees and other fixed expenses. The image below shows the sales and administrative budget from our template:

S&A budget

Most expenses in this budget are fixed costs. That’s why the amounts are the same for every quarter. Manufacturing companies may also call this budget a “fixed overhead budget.”

Step 7: Create the Capital Budget

A capital budget shows all the planned capital expenditures during the year. In our capital budget example below, there are no figures because the sample company didn’t plan any capital decisions for 2024. However, we’ve included common capital decisions for you to fill out when you use our template. For instance, a bank loan is a capital inflow while the purchase of equipment is a capital outflow.

Capital budget

The capital budget in our downloadable spreadsheet does not auto-populate from the assumptions tab. Instead, enter your budgeted loans and purchases directly in the report.

Step 8: Create the Cash Budget

The last budget that you need to prepare is the cash budget, which shows all the cash inflows and outflows from all budgets. Almost all budgets above affect cash flow. For example, the sales budget can show all cash inflows from cash sales and subsequent cash collections from credit sales.

Cash budget

Accounts Receivable & Accounts Payable Schedule

Collections from accounts receivables (A/R) and payments of accounts payable (A/P) are integral parts of the cash budget. Creating the A/R and A/P schedules helps in computing the ending balance of A/R and A/P and the amount of cash collections and payments per quarter. Below are the supporting A/R and A/P schedules for our cash budget above:

A/R and A/P schedules

Step 9: Assemble the Proforma Financial Statements Based on Budgeted Figures

The ultimate result of the budgeting process is the proforma financial statements, which are the budgeted or projected results of planned activities. If the budget goes as planned, the actual financial statements should be near the proforma financial statements. Below are the proforma income statement and balance sheet in our small business budget template.

Proforma Income Statement

Proforma Owner’s Equity Statement

Proforma Balance Sheet

Budgeting helps businesses plan on future events and meet company goals. However, it is likely that you will experience difficulties and problems during the budgeting process. The four problems we’ll discuss are budgetary slack, goal incongruence, budget myopia, and standard setting.

Budgetary slack and goal incongruence occur when managers are not aligned with the business’s overall goals and objectives, while budget myopia happens when the business forgets to consider the impact of short-term decisions in the long run. Lastly, standard setting often poses a problem when standards are too high or ideal. Let’s discuss each of them in greater detail below.

Budgetary Slack

Sometimes, managers and heads can use budgets to preempt results to their favor. This unethical practice is called budgetary slack or budget padding. Budget slacks occur when managers underestimate revenue goals and overestimate expense goals and when the business follows the participatory budget involvement strategy.

When time for evaluation arrives, budget slacks will make the manager’s performance as exemplary. Managers tend to include budgetary slacks when top management is too strict and punitive whenever budgets aren’t met.

For example, the sales manager underestimates the sales forecast at $50,000 for the first quarter, knowing that they can achieve actual sales of $70,000. This example shows how budgetary slack can affect performance evaluation and create a false reflection of the company’s ability to generate revenue.

Goal Incongruence

Budgets are goals. When goals of management and employees don’t meet, the budget will not reflect the results that’s best for the business as a whole. Preventing goal incongruence enhances the quality of the budget. The goal of employees should be aligned with the business’s goals, and top management should provide opportunities for employees to pursue their career growth within the business.

Improper communication of business goals and ineffective leadership are the common causes of goal incongruence. As a small business owner or manager, you should show employees that you are committed to them with respect to their professional goals and that you expect them to align themselves with the business’s overall goals.

Budget Myopia

Budget myopia occurs when budgeting focuses only on short-term goals without considering how these goals will affect the company in the future. Managers become “myopic” in budgeting when they see budgets as measures for performance—they forget that the main objective of budgeting is to plan, organize, and manage the firm’s resources. As a result, budget realignments occur because there is a failure to plan future events.

Standard Setting

Another hurdle in budgeting is setting standards, which are tools for planning and controlling. If used inappropriately, they can cause problems in the budgeting process. It is important that you have to set your standards at a practical level.

Practical standards allow room for error or inefficiencies. It gives employees a chance to learn and improve their outputs without affecting performance. Unwise managers often impose ideal standards or standards that require optimum performance and perfection.

As a result, imposing ideal standards results in employee burnout, decreased productivity, and negative employee morale. Discouraged employees might also result in dysfunctional behavior that might be detrimental to the company.

Frequently Asked Questions (FAQs)

Why is budgeting important.

Budgets help in planning and managing business resources. Since plans and goals require an outflow of resources, budgets help the business determine the right amount of resources needed to achieve the goal.

Who should have an active participation in the budgeting process for small businesses?

The small business owner should have an active role in helping managers and supervisors craft their budgets. As the owner, you should guide your employees to align their goals with the business’ overall goals.

With our small business budget guide and template, you can create a small business master budget. We hope that the template will help you understand why budgeting is crucial to the planning, organizing, and controlling business operations.

About the Author

Find Eric Gerard On LinkedIn

Eric Gerard Ruiz, CPA

Eric is an accounting and bookkeeping expert for Fit Small Business. He has a CPA license in the Philippines and a BS in Accountancy graduate at Silliman University. Since joining FSB, Eric has used his expertise and authority in curating and writing content about small business accounting and bookkeeping, accounting software, financial accounting and reporting, managerial accounting, and financial management.

Join Fit Small Business

Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you. Select the newsletters you’re interested in below.

Business growth

Business tips

7 free small business budget templates for future-proofing your finances

As a small business owner, you're likely balling with a lot more than your personal checking account. If you don't properly manage your business finances, there's more on the line than an overdraft fee—you now have an entire organization to account for.

Small business budgets are necessary to balance revenue, estimate how much you'll spend, and project financial forecasts, so you can stay out of the red and keep your business afloat.

But creating a small business budget template isn't a small task. Since I don't have a business to run, I did the heavy lifting for you—check out these free, downloadable templates for your small business budgeting.

Table of contents:

1. Static budget template

Best for: Multiple departments or revenue streams; Industries with complex operations

A static budget combines all the function-specific budgets a business uses into one. Typically, a static budget includes the following items (plus any other budgets your business might use):

Cash flow projections: Estimations of how much money will flow into and out of your business. They also help you decide when, how, and what you should spend money on.

Total expected spending: All estimated expenses, including labor and administrative costs. 

By integrating all of your budgets and projections, the static budget provides a full picture of your business's estimated expenses and financial strategy for the upcoming fiscal year. 

2. Overhead budget template

Best for: Service-based businesses

It's easy to forget about expenses that aren't directly tied to production, like delivery charges or utilities. But these costs exist (and can add up quickly), so you need an overhead budget. A detailed overhead budget template will include:

Administration expenses

It compares your budgeted amount to actual figures (warning: it may be a rude awakening) and can help improve accuracy for future financial planning. 

Predicting overhead spending helps you plan how to use other funds more practically too—if you know how much you'll spend on overhead, you can make better business decisions. For example, you'd know whether you can afford to invest money into other initiatives like adding a delivery service or upgrading equipment.

3. Multiple-project budget template

Best for: Project-based industries

Product-by-product COGS (cost of goods sold)

Labor costs

Equipment and resource costs

Indirect project expenses like travel

A multiple-projects budget establishes estimates for everything you need to get projects across the finish line. It also lets you track costs to ensure you're not spending more than you accounted for in the budget.

4. Startup budget template

Best for: New small businesses and startups

But unlike established small businesses, you don't have past financial data to base expenses on. That's why you need a startup budget to focus on expenses for your first year of business, including items like:

Funding from investors and loans

Licensing and permits

Logo and website design

Website domain

Business software

Security installation 

Overhead expenses

Capital expenses

5. Labor budget template

Best for: Larger businesses with lots of employees

Unless you're a one-person show, you'll need a labor budget. And even if you are a one-person show, it's good to know if you can afford to pay yourself. A labor budget breaks down all employee-related costs like: 

Payroll taxes

Contract labor

Break down employee costs into direct, indirect, fixed, and variable categories to clarify how your company allocates its resources. You can also consider different scenarios more easily when you understand the breakdown of labor costs.

For example, you can simulate the impact of adding or reducing staff in specific departments or assess the effects of different compensation structures on different teams.

An accurate forecast of labor costs ensures you can sustainably meet your staffing needs and can help you make informed hiring decisions. Down the road, it can also help you determine if you can afford to give your staff raises, bonuses, or additional benefits.

6. Cash flow budget template

Best for: Businesses with fluctuating income and expenses; Seasonal businesses; Retail

As important as it is to be mindful of how much money you're spending, you should also track how much money you're making . A cash flow budget helps estimate how money is flowing in and out of your business. It includes:

Starting balance (set at the beginning of the month, quarter, or year)

Projected cash inflow from all revenue streams

Estimated cash expenditures

Ending balance (calculated at the end of the month, quarter, or year)

This type of budget lets you proactively manage your resources, anticipate potential cash shortages, and strategize for growth. For instance, if you know you're only going to break even this year, you may wait on expanding or making a large investment. 

7. Administrative budget template

Best for: Businesses focused on streamlining operations

An administrative budget includes all those general expenses that the company as a whole needs to function. This type of budget accounts for: 

Depreciation expenses

Training and development

Communication expenses

Accounting fees

While you could technically include administrative expenses in an overhead budget and call it a day, a separate administrative budget gives more of an eagle-eye view of how well your business is operating. 

Without an eye on administrative costs, you may be spending unnecessarily or lose focus on areas where it'd be wiser to invest your money. In other words, you could be spending way too much on fancy pens when you should be saving up to upgrade your cash register. 

Periodic budget reviews

A budget isn't a "set it and forget it" deal. Regular budget reviews can help you stay on track with your financial goals and respond proactively to changing market conditions. 

You should compare your estimated budget to actual spending. Then you can see where you went over and where you can splurge more. Try to review your budget monthly, quarterly, and yearly.

Monthly: Compare actual performance against your budgeted figures for the month. Identify any deviations and look for insights into cash flow, sales trends, and expense management.

Quarterly: Dive deeper into performance over the last three months. Use trends to project revenue and expenses for the upcoming quarter and identify areas for improvement.

Yearly: Reflect on your long-term financial objectives for the fiscal year. Assess the effectiveness of your budgeting strategies, and set new budget targets for the upcoming year. 

How to design your small business budget plan

It's cliched but true: you gotta spend money to make money. But that's no excuse to start throwing cash at your business willy-nilly.

Budgeting forces you to prioritize your objectives, so you spend money on the things that matter most. Here's how to create a small business budget in four steps:

Identify your working capital for the budgeting period. Add up your current assets like cash, accounts receivable, and inventory. Then subtract current liabilities like accounts payable and short-term debt. The remaining amount is what you have left to cover your operational expenses during the budgeting period.

Separate business and personal expenses. If you haven't already, open a dedicated business bank account. This makes it easier to track, categorize, and analyze your finances.

Determine your fixed and variable costs. Make a list of costs that stay the same every month (fixed costs) and what changes (variable costs). These will change based on the purpose of the budget. For instance, a labor budget will only consider employee-related costs.

Calculate your total expenses. Add up all the costs for your business, including fixed costs, variable costs, labor, and any other applicable expenses. This total is how much your business needs to run. Any leftover money from your working capital can be allocated toward other business investments. 

Budgeting methods

If you've budgeted before and hated it, you may just have been using an ineffective budgeting method for your preferences. Here are a few budgeting methods to try instead: 

Traditional: This budget is set for a determined amount of time and uses last year's numbers as a benchmark. Once you set your budget, you don't change it unless you get approval for an adjustment.

Rolling: This dynamic approach spans a continuous time frame instead of a fixed time period. As each month or quarter passes, you add a new budget period and drop the oldest period. This lets businesses adjust projections based on real-time performance and market conditions.

Flexible: This budget changes along with your sales forecast. As real-time sales activity deviates from budgeted amounts, you recalculate the budget to reflect the new data. 

Small business budget FAQ

Still don't know where to start with your small business budget? Check out the answers to these common questions before you open a new Google Sheet.

What should a business budget include?

A business budget should include all income sources and expenses. Income sources could include projected revenue from sales, loans, or potential investor funding. Expenses may include items like office space rent, employee salaries, insurance, and marketing. Add anything that helps paint a full picture of your finances.

How much does the average small business startup cost?

What is the best free business budgeting software.

The best free budgeting business software will depend on what your business needs, but you can try apps like Mint or Wave. Or you can use a spreadsheet—scroll up for some free small business budget templates.

Automate your small business

Related reading:

Get productivity tips delivered straight to your inbox

We’ll email you 1-3 times per week—and never share your information.

Cecilia Gillen

Cecilia is a content marketer with a degree in Media and Journalism from the University of South Dakota. After graduating, Cecilia moved to Omaha, Nebraska where she enjoys reading (almost as much as book buying), decor hunting at garage sales, and spending time with her two cats.

• Small business
• Finance & accounting

Related articles

Project milestones for improved project management

Project milestones for improved project...

14 data visualization examples to captivate your audience

14 data visualization examples to captivate...

61 best businesses to start with $10K or less

61 best businesses to start with $10K or...

SWOT analysis: A how-to guide and template (that won't bore you to tears)

SWOT analysis: A how-to guide and template...

Improve your productivity automatically. Use Zapier to get your apps working together.

How to create a business budget

Advertiser disclosure.

We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.

Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.

How We Make Money

The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.

• Share this article on Facebook Facebook
• Share this article on Twitter Twitter
• Share this article on LinkedIn LinkedIn
• Share this article via email Email

• • Small business loans
• • Bad credit loans
• • Funding inequality
• Connect with Emily Maracle on LinkedIn LinkedIn
• Get in contact with Emily Maracle via Email Email

The Bankrate promise

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money .

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy , so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts , who ensure everything we publish is objective, accurate and trustworthy.

Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money.

Editorial integrity

Bankrate follows a strict editorial policy , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

Key Principles

We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.

Editorial Independence

Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.

How we make money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.

Bankrate follows a strict editorial policy , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.

We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.

Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.

Our writers and editors used an in-house natural language generation platform to assist with portions of this article, allowing them to focus on adding information that is uniquely helpful. The article was reviewed, fact-checked and edited by our editorial staff prior to publication.

Key takeaways

• A business budget is a financial plan that helps estimate a company's revenue and expenses, making it an essential tool for small businesses
• The steps to creating a business budget include choosing budget and accounting software, listing expenses and forecasting revenue
• If a business finds itself in a budget deficit, strategies such as cutting costs, negotiating with suppliers and diversifying revenue streams can help

As a small business owner, keeping your finances organized through a business budget is crucial to running a successful company.

Business budgeting involves creating a financial plan that estimates future revenue and expenses to make informed financial decisions, which can ultimately move the needle on your business’s financial goals and help it grow in profitability.

What is a business budget?

A business budget is a financial plan that outlines the company’s current revenue and expenses. The budget also forecasts expected revenue that can be used for future business activities, such as purchasing equipment. It sets targets for your business’s revenue, expenses and profit and helps you determine if you’ll have more money coming in than you pay out.

A business budget is an essential tool that helps you make wise business decisions. Without it, it’s difficult to gauge your business’s financial health.

What is the difference between a cash flow statement and a business budget?

A cash flow statement  (CFS) is a financial document that summarizes the movement of cash coming in and going out of a company. The CFS gauges how effectively a company manages its finances, including how it manages debt responsibilities and funds day-to-day operations.

It’s similar to a business budget in that you can see expenses and revenue. But while a budget gives a moment-in-time snapshot of your business’s financial performance compared to forecasts, the cash flow statement focuses on the actual inflows and outflows of money through your business.

Follow these steps to ensure a well-developed budget, from understanding your expenses to generating revenue and adjusting expenses to balance the budget.

1. Choose a budget and accounting software

First, you’ll want to store your expense and revenue information with accounting software to help you track your numbers and generate reports. Some software may also help you assign categories to the transactions, identify tax deductions and file taxes. Quickbooks is an example of accounting software.

Some business bank accounts also have accounting software built in, helping you stay organized by keeping your accounting and banking in one place.

2. List your business expenses

The next step in creating a small business budget is to list all your business expenses. Here are the types of expenses you want to include in your budget:

• Fixed expenses: Fixed expenses cost a fixed amount monthly or within the assessed period. Those costs include rent, insurance, salaries and loan payments.
• Variable expenses: Variable expenses can change monthly or over time, making them trickier to budget. This might include materials, direct labor, utility bills or marketing expenses.
• Annual or one-time costs: Some costs only occur a few times per year, while others you’ll only pay for as needed, such as buying new equipment. You still want to budget for these expenses by allocating a portion of your weekly or monthly budget toward one-time expenses.
• Contingency funds: Unexpected business costs can throw a wrench in your budget if not planned for. Such costs could include emergency repairs, necessary equipment purchases, sudden tax increases or unforeseen legal fees. To plan for these costs, you can create a contingency or emergency fund that’s separate from your operational budget.
• Maintenance costs: To allocate funds for maintenance costs, begin by including regular inspections and maintenance in your budget. Then, make sure to leave room for changes and unexpected maintenance costs.

3. Forecast your revenue

To estimate your future revenue, start by deciding on a timeline for your forecast. A good place to start is the previous 12 months. Your accounting software may also include revenue forecasting as one of its features, which can automate this step for you.

The timeline and your recent past growth can help you understand how much revenue you’ll generate in the future. Consider external factors that could drive revenue growth, such as planned business activities like expansion, marketing campaigns or new product launches.

You’ll also want to think about anything that might slow your growth. Many businesses experience seasonal fluctuations, which can impact your budget if you don’t plan for it. To account for these changes, list the minimum expenses required to keep your business running. Use your financial statements to understand these costs, and consider averaging out irregular expenses over the year to avoid surprises.

Ideally, your business should build a cash reserve during profitable periods to cover expenses during slower seasons. If necessary, consider various financing options, such as a business credit card or line of credit, that you can draw from to manage cash flow during peak or off times. Lightbulb Bankrate insight If you use debt financing to cover an expense, make sure that you can manage the debt in your regular business budget. Avoid going into debt when you don’t have a clear plan to pay it off or when you’re uncertain about your business’s profitability.

4. Calculate your profits

The next step in creating a business budget is to calculate your business profits. You can look at your total profits by calculating revenue minus expenses. That way, you see how much money you have to work with, called your working capital .

You should also understand your profit margins for each of your products and services, which can help you set prices or decide whether to offer a new product or service.

How to calculate your profit margins

To find out your gross profit margin, you’ll first need to calculate the gross profit. To calculate your business’s gross profit, subtract the cost of goods sold (COGS) from your total revenue. COGS includes all the expenses related to producing your products and services.

Once you have the gross profit, use the gross profit margin formula: (Revenue – COGS) / Revenue x 100. This will give you a percentage that shows how much profit you gain from that particular product after accounting for the product’s costs. Calculator Bankrate insight If your total product revenue is $50 and the total production costs are $35, your gross profit would be $15. To find the gross profit margin, you’d do the following calculation: ($50-$35) / $50 x 100 = 30%. The gross profit margin in this example is 30 percent.

5. Make a strategy for your working capital

Knowing what to do with extra revenue, which is your working capital, is crucial for managing your business finances and growth. Here’s how to get started with a financial strategy that propels your business goals forward:

• Set spending limits for different categories in your budget. When listing your expenses, you should have set a dollar amount for each category. You can estimate this by a monthly average or a general forecasted amount.
• Set realistic short- and long-term goals. These goals will motivate you to stick to your budget and guide your spending decisions.
• Compare your actual spending with your net income and priorities. Look at the areas you’re spending and consider whether you need to reallocate money to different categories. Consider separating expenses into business needs and extras.
• Adjust your budget and actual spending. Adjust your spending to ensure you do not overspend and can allocate money towards your goals. If you need to cut spending, consider the categories that are extras, such as types of marketing that you don’t know will generate a return on investment.

6. Review your budget and forecasts regularly

Finally, review your budget regularly. By frequently checking in on your budget, you can identify any discrepancies between your planned and actual expenses and adjust accordingly. This allows you to proactively handle any financial issues that may arise rather than reacting to them after they’ve become a problem.

Regular reviews also allow you to refine your budgeting process and improve its accuracy over time. Keep in mind that your budget is not set in stone but rather a tool to guide your financial decisions and help you achieve your business goals. Lightbulb Bankrate insight As you create your business budget and make business decisions, you can write or adjust your business plan to match your evolving priorities. The business plan outlines your business goals and the steps and strategies you’ll take to achieve them.

What to do if you have a deficit in your business budget

Finding a deficit in your small business budget can be alarming, but there are several strategies you can employ to handle this situation.

• Do a cash flow analysis. Begin by doing a cash flow analysis to review what your business is earning and spending money on. Identify potential problems and adjust the budget as needed to prevent overspending.
• Cut nonessential business costs. Cutting spending may involve eliminating nonessential costs and transferring funds from other categories to overspent categories. Your goal is a balanced or profitable budget.
• Negotiate with suppliers. Be transparent in your communications with suppliers and explain your quality standards and why you’re seeking cost reduction. Explore options for cost reduction that do not compromise quality, such as process improvements or ordering in larger quantities.
• Create a lean business model. By removing anything that doesn’t benefit your customer, your business can potentially save time and resources. Lean business models focus on continually improving processes and customer experience without adding additional resources, time or funds.
• Add revenue and diversify revenue streams. Raising revenue requires a realistic plan with measurable goals to increase sales and overall business income. You can also consider other products and services you could offer that would make your business profitable.
• Use financing to cover temporary gaps. Applying for a small business loan can help pay bills during an unplanned shortfall. Since this will add an expense to your budget, make sure you can handle the loan repayments and your regular expenses.
• Plan for a deficit. In some cases, a planned budget deficit might be a strategic decision, such as investing in new opportunities that promise long-term benefits.

Bottom line

Having a well-developed business budget is crucial for making informed decisions. You can effectively manage your small business’s finances by tracking and analyzing your business’s inflows and outflows, forecasting your expected revenue and adjusting your budget to stay balanced.

Even in the face of a budget deficit, there are various strategies you can use to keep your business profitable, including negotiating costs with your suppliers, assessing your business operations and offering new products and services.

With a solid business budget in place, you can confidently navigate financial challenges and drive long-term success for your small business.

Frequently asked questions

What are the benefits of a business budget, what are the components of a business budget, how do you calculate fixed and variable costs in a business budget, related articles.

How to get a business loan in 6 steps

How to make a monthly budget in 5 simple steps

How to finance a small business for the holidays

How to start a small business

Lean Business Planning

Get what you want from your business.

How to Budget Expenses

Along with the revenue forecast, you need to plan and manage spending. Revenue is money coming in, and spending is money going out. This is how to budget expenses for your business plan.

By the way, the word budget, as I use it here, is exactly the same as forecast. The difference between the two is just custom. I could just as easily refer to revenue and spending budgets, or revenue and spending forecasts, as revenue forecast and spending budget. Most people are used to them the way I’m using them, with forecast for revenue and budget for spending.

There are three common types of spending in a normal business. These are the things you write checks for.

• The first is costs, direct costs, what you spend on what you sell. Those are the costs you have already estimated in your sales forecast.
• The second is your expenses. They are mostly operating expenses, like rent, utilities, advertising, and payroll.
• The third is what you spend to repay debts and purchase assets. I call that “other spending.” These are important financial terms that you have to use correctly; so if you have any doubt, investigate what assets are and how debt repayment is different from interest expense, not an expense, but something that absorbs cash and affects the cash available to the business.

Let’s look first at the most common kind of spending, the operating expenses.

The Expense Budget

Make sure you understand expenses as a technical financial term. Expenses are spending like payroll and rent that aren’t part of direct costs and reduce profits and taxable income. You need to understand that difference if you are going to run a business and manage cash flow. If you have any doubts, please read up on that.

Just as you did for sales forecast and direct costs, try to always project expenses in the same categories you have in your chart of accounts. If your accounting divides marketing expenses into personnel, advertising, and PR, don’t project marketing expenses in your business plan as print, online, and social media. This is important.

Summary of Operating Expenses

Forecasting your operating expenses is a matter of experience, educated guessing, a bit of research, and common sense. Let’s look at a sample expense budget from the same bicycle business plan I used in the sales forecast section above (with middle columns cut out):

All the numbers are educated guesses. Garrett, the bicycle storeowner, knows the business. As he develops his first lean plan, he has a good idea of what he pays for rent, marketing expenses, leased equipment, and so on. And if you don’t know these numbers, for your business, find out. If you don’t know rents, talk to a broker, see some locations, and estimate what you’ll end up paying. Do the same for utilities, insurance, and leased equipment: Make a good list, call people, and take a good educated guess.

Payroll and Payroll Taxes are Operating Expenses

Payroll, or wages and salaries, or compensation, are worth a list of their own. In the case of the bike shop owner, for payroll, he does a separate list so he can keep track. Payroll is a serious fixed cost and an obligation. Garrett’s summary budget (above) has the one line for payroll but it comes from a separate list. He just takes the total into the budget. Here’s the list:

Notice that the totals from the Personnel Plan show up in the expense budget. And if you look closely (it may take a calculator) at the expense row “Payroll Taxes” and compare that amount to the total payroll, you’ll see that it’s an estimate based on 25 percent of payroll. Garrett uses “Payroll Taxes” as a blanket term; it includes what he spends on health insurance and other benefits.

Restaurant Example

Since I’ve used Magda’s new restaurant as an example for the sales forecast, I’m including its operating expenses here too, as a second example.

Simple Operating Expense Budget

The illustration shows Magda’s lean plan budget for expenses:

And we can also look at Magda’s budget for payroll. As with the bicycle store, the operating expenses include the summary of payroll from two rows: Gross Salary is in the row called “Payroll,” and Benefits are in the row above titled “Payroll Taxes”.  Both of these come from the payroll projection in the following illustration:

While Garrett has some other expenses along with payroll taxes in his “Benefits,” Magda’s bare-bones startup has just the payroll taxes. That’s why Garrett’s estimate of benefits compared to gross salary is 25%, and Magda’s is only 15%. And that’s why Magda labels her operating expense row as “Payroll Taxes,” while Garrett calls his “Benefits.”

Other spending

This is tricky: standard accounting and financial analysis include only sales, costs, and expenses in the calculation of  Profit and Loss . However, in the real world, some of what you spend isn’t included in either costs or expenses. For example, repaying a loan takes money, but doesn’t show up anywhere in the profit and loss. And if you have a product-based business and proper accrual accounting, the money you spend buying inventory doesn’t show up in the profit and loss until that inventory sells. Buying a vehicle or production equipment isn’t tax deductible and isn’t an expense; but it costs money. The rule of thumb is that all expenses are tax deductible, but not all spending is an expense.

What to do? Plan and track your operating expenses for sure. And if you need to handle loan repayments, purchasing assets, distributing profits, owners’ draw, or other spending outside of profit and loss, keep those in your spending budget. Keep track of them. Plan for them.

Understand Starting Costs

Startup costs are a special case that applies to startup businesses only. They are the sum of the assets you need to purchase before you start, plus the expenses you incur before you start. My advice on how to estimate starting costs is waiting for you later, in Appendix A .

Share this:

Leave a comment cancel reply, discover more from lean business planning.

Subscribe now to keep reading and get access to the full archive.

Type your email…

Continue reading

This device is too small

If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.

• Small Business
• The Top 10 Accounting Software for Small Businesses

How to Create a Business Budget for Your Small Business

See Full Bio

Our Small Business Expert

If you’ve just started your business, chances are that you have yet to create a budget. But it’s difficult to grow your business, meet any short- or long-term goals, or obtain outside investors or financing without accurate financial projections, which requires a small business budget.

Creating a budget also plays an important role in the the accounting cycle, which ensures that all financial transactions are properly accounted for.

And while the act of creating a budget may seem daunting, it’s much like creating a personal budget. You identify what you own of value (your assets), estimate your upcoming expenses, and account for and grow your revenue base.

If you know how to create an expense report or how to write an invoice, and are comfortable with the basics of bookkeeping, you can certainly handle business budget planning.

By creating, and more importantly, following a budget, you can eliminate wasteful spending, develop plans to expand your revenue base, and work toward your set goals in a productive fashion.

5 types of budgets for businesses

Budgets help businesses track and manage their resources. Businesses use a variety of budgets to measure their spending and develop effective strategies for maximizing their assets and revenues. The following types of budgets are commonly used by businesses:

1. Master budget

A master budget is an aggregate of a company's individual budgets designed to present a complete picture of its financial activity and health. The master budget combines factors like sales, operating expenses, assets, and income streams to allow companies to establish goals and evaluate their overall performance, as well as that of individual cost centers within the organization.

Master budgets are often used in larger companies to keep all individual managers aligned.

2. Operating budget

An operating budget is a forecast and analysis of projected income and expenses over the course of a specified time period.

To create an accurate picture, operating budgets must account for factors such as sales, production, labor costs, materials costs, overhead, manufacturing costs, and administrative expenses. Operating budgets are generally created on a weekly, monthly, or yearly basis. A manager might compare these reports month after month to see if a company is overspending on supplies.

3. Cash flow budget

A cash flow budget is a means of projecting how and when cash comes in and flows out of a business within a specified time period. It can be useful in helping a company determine whether it's managing its cash wisely.

Cash flow budgets consider factors such as accounts payable and accounts receivable to assess whether a company has ample cash on hand to continue operating, the extent to which it is using its cash productively, and its likelihood of generating cash in the near future.

A construction company, for example, might use its cash flow budget to determine whether it can start a new building project before getting paid for the work it has in progress.

4. Financial budget

A financial budget presents a company's strategy for managing its assets, cash flow, income, and expenses. A financial budget is used to establish a picture of a company's financial health and present a comprehensive overview of its spending relative to revenues from core operations.

A software company, for instance, might use its financial budget to determine its value in the context of a public stock offering or merger.

5. Static budget

A static budget, unlike a flexible budget, is a fixed budget that remains unaltered regardless of changes in factors such as sales volume or revenue. A plumbing supply company, for example, might have a static budget in place each year for warehousing and storage, regardless of how much inventory it moves in and out due to increased or decreased sales.

How to make a budget for your small business

One of the easiest and most accurate ways to create a budget is to review your revenue and costs for the past year and use those numbers when creating your new budget.

If your business is brand new, you’ll have to be a bit more creative, relying on obtaining numbers from the last few months, or researching similar businesses to obtain accurate estimates on revenue and expenses.

However you do it, learning budgeting for business is a lot easier than you imagine.

Step 1: Review your revenue

The first step toward creating a budget is to examine your revenue: not just the total for any given time, but specifics, such as months when revenue rose or dipped. This is particularly important for managing cash flow.

For instance, many retailers earn a large part of their yearly revenue in the months of November and December, while January and February typically are very slow in sales.

Knowing this information and including it in your budget can help you be better prepared for both the busy and the slow months.

Step 2: Take a look at your fixed expenses

As a small business owner, you should know what your regular monthly expenses are. If you know how to track business expenses such as rent, insurance, salaries, and utilities, you can create a budget.

Factoring these items into your budget helps to ensure that you’re accounting for these expenses properly.

Step 3: Factor in variable expenses

Whether in our personal lives or in business, we need to factor in variable expenses.

For instance, you may need to hire a temp if your office manager becomes unexpectedly ill. Other variable costs can include advertising and marketing, as well as postage or printing costs. Travel is another cost that may be planned (you know you’re going to a convention in May), but the final cost is not yet known.

Factoring in variable expenses can help with your bottom line. Don’t be conservative in estimating these costs, You’d rather they be too high, leaving you more money than expected for the month than the opposite.

Step 4: Include one-time and unexpected costs

While it may seem counterintuitive to include unexpected costs into your budget when they haven’t even occurred yet, you can safely assume that something unexpected will happen.

Your computer crashes and needs to be repaired, or worse, replaced. Or maybe your company car dies. These are both examples of unexpected costs. You can also plan for one-time costs.

For instance, you know you’ll be upgrading employee laptops in December. This allows you to plan for this expense in advance, ensuring that the funds should be available.

Step 5: Put all your information into a budget format

The ideal situation is to prepare your budget details in your accounting software application.

However, not all accounting software, particularly those designed for small businesses, include a budgeting feature. In that case, you can use Microsoft Excel or similar spreadsheet software to prepare your budget.

This Microsoft Excel spreadsheet can be used to create your business budget. Image source: Author

One of the main advantages of preparing a budget in your accounting software application is that you can track budget versus actual revenue and expenses. This lets you see how accurate (or not) your budget is, allowing you to perhaps make some mid-year adjustments.

Things to consider when making a budget for your business

Creating a budget is a great first step toward managing your business properly. However, it’s important when creating your budget that you do your best to make it as accurate as possible. There are numerous ways to do that, including the following:

1. Be conservative with revenue

When entering revenue totals, be conservative. At the beginning of the year, we're all optimistic. But be sure when you budget your revenue, you enter numbers that are as accurate as possible.

When planning for revenue growth, be conservative as well, perhaps budgeting for a 5%-10% growth for the year. If you exceed that level, great. You’ll have money to spare. But if you don’t, you’ll end up with a loss, which is not where you want your business to be.

2. Plan for growth

Planning for growth is important when calculating budget revenue, but you’ll have to account for added expenses as well.

Yes, if your business grows, your revenue will increase, but so will your overhead, as you increase advertising, add employees, and pay additional taxes. So when planning for business growth, be sure to factor in your increased expenses as well.

3. Unexpected expenses

This is an important one. One catastrophe can be disastrous for your business, particularly if you operate on limited cash flow.

When budgeting, just assume that your business will have at least one major unexpected expense during the year. If it doesn’t, great. You can bank that money for when the unexpected does occur.

4. Long-term goals

Before completing your budget, you might want to consider your long-term goals.

Do you plan on increasing your customer base each year by 5%? Perhaps you’re working out of your home, but plan on renting or buying a building for your business in the next year or two.

Be sure to factor that into your budget, and plan your income and expenses accordingly.

The best accounting software for tracking your small business budget

Not every accounting software application offers budgeting capability, but the following small business accounting software applications do.

If you’re looking to make the move to accounting software, or are looking for an application that allows you to create and manage a budget for your business, be sure and check out these applications.

Xero lets you easily create a budget using their Budget Manager feature. You can choose your start date for any budget, and prepare a budget of 3, 6, 12, or 24 months. Xero also allows you to compare any created budget to actual totals, to see how far under or over budget your company is.

The Budget Manager lets you choose start date, actuals, and period of time for each budget. Image source: Author

You can copy budget details from actuals for the prior year, copy data from an existing budget, or create a new budget from scratch. Adjustments can be made for each budget period, so you can adjust the amount each month to increase budgeted totals by a set amount or by percentage. This is a great way to budget for growth.

2. QuickBooks Online

The budgeting feature in QuickBooks Online lets you create a yearly budget easily. Just choose the correct fiscal year, click on the “Add Budget” button, and start entering budget details.

You can choose to pre-fill budget data using actual QuickBooks Online data or just create a budget from scratch. You have the option to create a monthly, quarterly, or yearly budget, and can choose to subdivide your budget by customer, class, or location, or just enter a single total into the appropriate fields.

The Budget Preview feature lets you preview your newly created budget for accuracy. Image source: Author

Budget data can be edited when desired, and to get a sense of your business performance, run the Budget vs. Actuals report, which displays current company performance to date.

3. Zoho Books

Zoho Books offers excellent budget creation capability, offering three ways to enter budget data:

• Auto-fill budget information based on current income and expense accounts
• Pre-fill from last year’s actual numbers
• Start from scratch, entering budget numbers manually

Like Xero, Zoho Books lets you enter budget numbers for a single period, then specify a percentage increase or decrease in budgeted numbers.

For instance, if your short-term plan for this year is to increase your revenue by 5% each quarter, you can enter that information in Zoho Books, and it will automatically calculate the 5% increase and auto-fill the rest of the budget. You can also apply a fixed amount for each period.

Zoho Books offers a comprehensive budget management feature with multiple entry options. Image source: Author

At the end of the specified budget period, you can compare actuals against your budgeted amounts to view business performance and make any adjustments going forward.

Get started on your budget today

Now that you know how easy it is to prepare a budget for your small business, what are you waiting for?

Completing a budget for your business will provide you with the information you need to grow your business, plan for the unexpected, and stay on track for the future.

We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

Copyright © 2018 - 2024 The Ascent. All rights reserved.

A How-To Guide for Creating a Business Budget

Amanda Smith

Reviewed by

September 23, 2022

This article is Tax Professional approved

Most business owners know how important a business budget is when it comes to managing expenses and planning for the future—but in a challenging economic environment like the one we’ve been experiencing, your business budget takes on even greater significance.

With inflation running rampant and the possibility of a recession looming, business owners need to be able to forecast their cash flow, manage their expenses, and plan for the future. Creating a detailed business budget is the first step.

Whether you want to revamp your budgeting method, or you’ve never created a business budget before, this guide will walk you through the process.

I am the text that will be copied.

What is a business budget?

A budget is a detailed plan that outlines where you’ll spend your money monthly or annually.

You give every dollar a “job,” based on what you think is the best use of your business funds, and then go back and compare your plan with reality to see how you did.

A budget will help you:

• Forecast what money you expect to earn
• Plan where to spend that revenue
• See the difference between your plan and reality

What makes a good budget?

The best budgets are simple and flexible. If circumstances change (as they do), your budget can flex to give you a clear picture of where you stand at all times.

Every good budget should include seven components:

1. Your estimated revenue

This is the amount you expect to make from the sale of goods or services. It’s all of the cash you bring in the door, regardless of what you spent to get there. This is the first line on your budget. It can be based on last year’s numbers or (if you’re a startup ), based on industry averages.

2. Your fixed costs

These are all your regular, consistent costs that don’t change according to how much you make—things like rent, insurance, utilities, bank fees, accounting and legal services, and equipment leasing.

Further reading: Fixed Costs (Everything You Need to Know)

3. Your variable costs

These change according to production or sales volume and are closely related to “ costs of goods sold ,” i.e., anything related to the production or purchase of the product your business sells. Variable costs might include raw materials, inventory, production costs, packaging, or shipping. Other variable costs can include sales commission, credit card fees, and travel. A clear budget plan outlines what you expect to spend on all these costs.

The cost of salaries can fall under both fixed and variable costs. For example, your core in-house team is usually associated with fixed costs, while production or manufacturing teams—anything related to the production of goods—are treated as variable costs. Make sure you file your different salary costs in the correct area of your budget.

Further reading: Variable Costs (A Simple Guide)

4. Your one-off costs

One-off costs fall outside the usual work your business does. These are startup costs like moving offices, equipment, furniture, and software, as well as other costs related to launch and research.

5. Your cash flow

Cash flow is all money traveling into and out of a business. You have positive cash flow if there is more money coming into your business over a set period of time than going out. This is most easily calculated by subtracting the amount of money available at the beginning of a set period of time and at the end.

Since cash flow is the oxygen of every business, make sure you monitor this weekly, or at least monthly. You could be raking it in and still not have enough money on hand to pay your suppliers.

6. Your profit

Profit is what you take home after deducting your expenses from your revenue. Growing profits mean a growing business. Here you’ll plan out how much profit you plan to make based on your projected revenue, expenses, and cost of goods sold. If the difference between revenue and expenses (aka “ profit margins ”) aren’t where you’d like them to be, you need to rethink your cost of goods sold and consider raising prices .

Or, if you think you can’t squeeze any more profit margin out of your business, consider boosting the Advertising and Promotions line in your budget to increase total sales.

7. A budget calculator

A budget calculator can help you see exactly where you stand when it comes to your business budget planning. It might sound obvious, but getting all the numbers in your budget in one easy-to-read summary is really helpful.

In your spreadsheet, create a summary page with a row for each of the budget categories above. This is the framework of your basic budget. Then, next to each category, list the total amount you’ve budgeted. Finally, create another column to the right—when the time period ends, use it to record the actual amounts spent in each category. This gives you a snapshot of your budget that’s easy to find without diving into layers of crowded spreadsheets.

See the sample below.

Pro tip: link the totals on the summary page to the original sums in your other budget tabs . That way when you update any figures, your budget summary gets updated at the same time. The result: your very own budget calculator.

You can also check out this simple Startup Cost Calculator from CardConnect. It lays out some of the most common expenses that you might not have considered. From there, you can customize a rough budget for your own industry.

Small business budgets for different types of company

While every good budget has the same framework, you’ll need to think about the unique budgeting quirks of your industry and business type.

Seasonal businesses

If your business has a busy season and a slow season, budgeting is doubly important.

Because your business isn’t consistent each month, a budget gives you a good view of past and present data to predict future cash flow . Forecasting in this way helps you spot annual trends, see how much money you need to get you through the slow months, and look for opportunities to cut costs to offset the low season. You can use your slow season to plan for the next year, negotiate with vendors, and build customer loyalty through engagement.

Don’t assume the same thing will happen every year, though. Just like any budget, forecasting is a process that evolves. So start with what you know, and if you don’t know something—like what kind of unexpected costs might pop up next quarter— just give it your best guess . Better to set aside money for an emergency that doesn’t happen than to be blindsided.

Ecommerce businesses

The main budgeting factor for ecommerce is shipping. Shipping costs (and potential import duties) can have a huge impact.

Do you have space in your budget to cover shipping to customers? If not, do you have an alternative strategy that’s in line with your budget—like flat rate shipping or real-time shipping quotes for customers? Packaging can affect shipping rates, so factor that into your cost of goods sold too. While you’re at it, consider any international warehousing costs and duties.

You’ll also want to create the best online shopping experience for your customers, so make sure you include a good web hosting service, web design, product photography, advertising, blogging, and social media in your budget.

Inventory businesses

If you need to stock up on inventory to meet demand, factor this into your cost of goods sold. Use the previous year’s sales or industry benchmarks to take a best guess at the amount of inventory you need. A little upfront research will help ensure you’re getting the best prices from your vendors and shipping the right amount to satisfy need, mitigate shipping costs, and fit within your budget.

The volume of inventory might affect your pricing. For example, if you order more stock, your cost per unit will be lower, but your overall spend will be higher. Make sure this is factored into your budget and pricing, and that the volume ordered isn’t greater than actual product demand.

You may also need to include the cost of storage solutions or disposal of leftover stock.

Custom order businesses

When creating custom ordered goods, factor in labor time and cost of operations and materials. These vary from order to order, so make an average estimate.

Budgeting is tricky for startups—you rarely have an existing model to use. Do your due diligence by researching industry benchmarks for salaries, rent, and marketing costs. Ask your network what you can expect to pay for professional fees, benefits, and equipment. Set aside a portion of your budget for advisors—accountants, lawyers, that kind of thing. A few thousand dollars upfront could save you thousands more in legal fees and inefficiencies later on.

This is just scratching the surface, and there’s plenty more to consider when creating a budget for a startup. This business startup budget guide from The Balance is a great start.

Service businesses

If you don’t have a physical product, focus on projected sales, revenue, salaries, and consultant costs. Figures in these industries—whether accounting, legal services, creative, or insurance—can vary greatly, which means budgets need flexibility. These figures are reliant on the number of people required to provide the service, the cost of their time, and fluctuating customer demand.

Small business budgeting templates

A business budget template can be as simple as a table or as complex as a multi-page spreadsheet. Just make sure you’re creating something that you’ll actually use.

Create your budget yearly—a 12-month budget is standard fare—with quarterly or monthly updates and check-ins to ensure you’re on track.

Here are some of our favorite templates for you to plug into and get rolling.

• The Balance has a clear table template that lists every budget item, the budgeted amount, the actual amount, and the difference between the two. Use this one if you’re looking to keep it simple.
• Capterra has both monthly and annual breakdowns in their Excel download. It’s straightforward, thorough, and fairly foolproof.
• Google Sheets has plenty of budget templates hiding right under your nose. They’re easy to use, and they translate your figures into clear tables and charts on a concise, visual summary page.
• Smartsheet has multiple resources for small businesses, including 12-month budget spreadsheets, department budget templates, projection templates, project-by-project templates, and startup templates. These templates are ideal if you’re looking for a little more detail.
• Scott’s Marketplace is a blog for small businesses. Their budget template comes with step-by-step instructions that make it dead simple for anyone.
• Vertex42 focuses on Excel spreadsheets and offers templates for both product-based and service-based businesses, as well as a business startup costs template for anyone launching a new business.

Budgeting + bookkeeping = a match made in heaven

Making a budget is kind of like dreaming: it’s mostly pretend. But when you can start pulling on accurate historical financials to plan the upcoming year, and when you can check your budget against real numbers, that’s when budgets start to become useful.

The only way to get accurate financial data is through consistent bookkeeping.

Don’t have a regular bookkeeping process down pat? Check out our free guide, Bookkeeping Basics for Entrepreneurs . We’ll walk you through everything you need to know to get going yourself, for free.

If you need a bit more help, get in touch with us. Bookkeeping isn’t for everyone, especially when you’re also trying to stay on top of a growing business—but at Bench, bookkeeping is what we do best.

Related Posts

Revenue vs. Profit: The Difference and When They Matter

When you’re running a business, it’s all about the bottom line. Or is it all about the top line? Discover how revenue and profit influence your business outcomes.

Owner’s Draw vs. Salary: How to Pay Yourself

How do you pay yourself when you're the boss?

11 Alternatives to QuickBooks in 2024

QuickBooks isn't for everyone. Here are 11 alternatives to explore, each with a different emphasis.

Join over 140,000 fellow entrepreneurs who receive expert advice for their small business finances

Get a regular dose of educational guides and resources curated from the experts at Bench to help you confidently make the right decisions to grow your business. No spam. Unsubscribe at any time.

Business budget templates to help you reach your goals

Keep track of your finances—monitor income and expenses, forecast cash flow and profits, and identify areas for cost reductions—with these free business budget templates..

Free business budget templates

Creating and sticking to a budget is essential to run a successful business. Exceeding your budget can quickly land you in financial trouble. It’s important to keep track of your business expenses, and using a business budget template can help you do so. Creating a business budget can also help you identify unnecessary expenses or help you cut costs. These business budget templates can help you track payroll expenses, insurance fees, utilities, and more. Use these business budget templates for startups, small businesses, or large businesses. You can easily edit these free business budget templates in Excel . Change the fonts, colors, and more, or add your business logo for a professional look. You can use these business budget templates to keep track of weekly, monthly, quarterly, or yearly business budgets. Print your budget out or share them digitally. You can also upload them to OneDrive if you want to collaborate on your business budget with other employees. Explore more templates that can help you grow your business .

Get expert insights delivered straight to your inbox.

How to Create a Basic Business Budget

8 Min Read | Aug 28, 2024

You’d never intentionally set your business up to fail, right? But if you don’t know your numbers and how to make a business budget, that’s exactly what you’re doing. Money problems and bad accounting are two reasons why many small businesses don’t make it past their first five years. 1

Talking about budgets can feel overwhelming. We get it. For a lot of business leaders, it’s a lot more comfortable dreaming up big ideas and getting stuff done than digging into numbers. But you can’t set yourself up for steady growth until you have a handle on the money flowing in and out of your company. You also can’t enjoy financial peace in your business.

Not a numbers person? That’s okay. Follow the simple steps below to learn how to create a budget for a business and manage your finances with confidence. We’ll even give you a link to an easy-to-use small-business budget template in the EntreLeader’s Guide to Business Finances .

But before we get to that, let’s unpack what a budget is and why you need one.

Don't Let Your Numbers Intimidate You

With the EntreLeader’s Guide to Business Finances, you can grow your profits without debt—even if numbers aren’t your thing. Plus, get a free business budget template as part of the guide!

What Is a Business Budget?

A business budget is a plan for how you’ll use the money your business generates every month, quarter and year. It’s like looking through a windshield to see the expenses, revenue and profit coming down the road. Your business budget helps you decide what to do with business profit, when and where to cut spending and grow revenue, and how to invest for growth when the time comes. Leadership expert John Maxwell sums it up: “A budget is telling your money where to go instead of wondering where it went.”

But here’s what a business budget is not: a profit and loss (P&L) report you read at the end of the month. Your P&L is like a rearview mirror—it lets you look backward at what’s already happened. Your P&L statement and budget are meant to work together so you can see your financial problems and opportunities and use those findings to forecast your future, set educated goals, and stay on track.

Why Do I Need to Budget for My Business?

Creating a budget should be your very first accounting task because your business won’t survive without it. Sound dramatic? Check this out: There are 33.2 million small businesses in the United States. Out of the small businesses that opened from 1994 to 2020, 67.7% survived at least two years. But less than half survived past five years. 2    The top reasons these businesses went under? They hit a wall with cash-flow problems, faced pricing and cost issues, and failed to plan strategically . 3

As a business owner, one of the worst feelings in the world is wondering whether you’ll be able to make payroll and keep your doors open. That’s why we can’t say it enough: Make a business budget to stay more in control and have more financial peace in running your business.

A budget won’t help you earn more money, but it will help you:

• Maximize the money you’ve got
• Manage your cash flow
• Spend less than your business earns
• Stay on top of tax payments and other bills
• Know if you’re hitting your numbers so you can move at the true speed of cash

How to Create a Budget for a Business

Your ultimate goal is to create a 12–18-month business budget—and you will get there! But start by building out your first month. Don’t even worry about using a fancy accounting program yet. Good ol’ pen and paper or a simple computer document is fine. Just start! Plus, setting up a monthly budget could become a  keystone habit  that helps kick-start other smart business habits.

Here’s how to create your first budget for business:

1. Write down your revenue streams.

Your revenue is the money you earn in exchange for your products or services. You’ll start your small- business budget by listing all the ways you make money. Look at last month’s P&L—or even just your checking account statement—to help you account for all your revenue streams. You’re not filling in numbers yet. Just list what brings in revenue.

For example, if you run an HVAC business, your revenue streams could be:

• Maintenance service calls
• Repair services and sales
• New unit installation
• Insulation installation
• Air duct cleaning

2. Write down the cost of goods sold (if you have them).

Cost of goods is also called inventory. These expenses are directly related to producing your product or service. In the HVAC example, your cost of goods would be the price you pay for each furnace and air conditioning unit you sell and install. It could also include the cost of thermostats, insulation and new ductwork.

3. List your expense categories.

It’s crazy how much money can slip through the cracks when we’re not careful about putting it in the budget. Think through  all  your business expenses—down to the last shoe cover your technicians wear to protect your customers’ flooring during house calls. Here’s a list of common business budget categories for expenses to get you started:

• Office supplies and equipment
• Technology services
• Training and education

Related articles : Product Launch: 10 Questions to Ask Before You Launch a New Product New Product Launch: Your 10-Step Checklist

4. Fill in your own numbers.

Now that you have a solid list of revenue and expense categories, plug in your real (or projected) numbers associated with them. It’s okay if you’re not sure how much you’ll sell just yet or exactly how much you’ll spend. Make an educated guess if you’re just starting out. If your business has been earning money for a while, use past P&L statements to guide what you expect to bring in. Your first budget is about combining thoughtful guesswork with history and then getting a more realistic picture month over month.

5. Calculate your expected profit (or loss). 

Now, number nerds and number haters alike—buckle in. We’re about to do some basic accounting so you know whether you have a profit or loss. This is your chance to figure out exactly how much you’re spending and making in your business.

Take your  gross revenue (the total amount of money you expect to make this month) and subtract your expenses and  cost of goods sold  to find your profit or loss. Here’s what that calculation looks like:

Revenue - Expenses - Cost of Goods Sold = Profit or Loss

Don’t freak out if your first budget shows a loss. That actually happens a lot with your first few monthly budgets. You’re learning and getting context on what’s coming in and going out so you can make adjustments. Keep doing your budget, and before you know it, you’ll be a rock star at telling your money where to go, planning for emergencies ,  investments and opportunities , and building momentum.  

6. Review your budget often. 

Whew! Once you get that first business budget under your belt, take a deep breath and celebrate. You’ve just done something huge for your business! (You’ll also be happy to know, budgeting gets easier from here since you can copy and paste your first one and tweak your income and expenses each month.)

But here’s the thing: Your budget can’t just sit in a drawer or on your computer. You’ve got to look at it consistently to make sure you’re actually following it.

Weekly Review

At least once a week, someone in your business (whether it’s you, a qualified team member or a bookkeeper) needs to track your transactions so you know what’s happening with your money all month. Then you can make adjustments before you have more month than money.

Every time you review your budget, ask yourself these three questions:

• Are we on target to hit our revenue goal this month?
• If not, what we can change to get there?
• Are there any expenses we can cut or minimize?

Monthly Review

You also need to review your business budget when you close your books every month to compare it to your actuals—your P&L. Otherwise, how can you know how you’re doing?

7. Work toward a 12–18-month budget.

Now that you’ve created your first month’s budget, move on to the next one. You’ve got this! The more budget-building reps you get in, the better you’ll be at looking forward and planning for growth. In no time, you’ll reach that ultimate goal of a 12–18-month budget. Just keep adjusting as you go based on all you’re learning about getting an accurate road map for your finances.

As you start owning your numbers, remember: It’s okay if you’re a little intimidated by the process of accounting and making a budget for business. But it’s not okay to avoid the financial details that will make or break you. So just keep applying the basics we covered and keep moving forward.

Follow the steps above to create your budget, and review it often to stay on track.

Want a tool to make budget building simpler? Check out the EntreLeader’s Guide to Business Finances. It includes an easy-to-use small-business budget template in the extra resources section.

What are the benefits of budgeting?

A business budget will help you:

• Make informed, strategic decisions
• Invest in under-resourced areas
• Trim over-resourced areas
• Plan for the future
• Set goals and track your progress

Does using a small-business budget template save time?

Yes! Using a small-business budget template helps you plug in the numbers you need to operate with more confidence and fewer wrong turns. Check out the small-business-budget template inside our EntreLeader’s Guide to Business Finances .

How do I budget if I own a seasonal business?

Just like farmers put extra hay in the barn to cover leaner months, if you’re a seasonal business owner, you need to set aside resources in times of plenty to cover months your business turns down. Use your P&L statements to go back in time and look at financial performance year over year. Then, create your business budget based on what you learn and on any changes you see coming. You can also go to trade conferences to get an idea of your industry’s seasonal benchmarks.

Did you find this article helpful? Share it!

About the author

EntreLeadership

EntreLeadership is the part of Ramsey Solutions that exists to help small-business owners thrive by mastering themselves, rallying their teams, and imposing their will on the marketplace. Thousands of leaders use our proven EntreLeadership System and resources to develop as leaders and grow their businesses. These resources include The EntreLeadership Podcast , EntreLeadership Elite digital membership , books, live events, coaching sessions and business workshops. Learn More.

7 Tips for How to Run a Business Debt-Free

True or false: Running a business requires debt. The answer? False. The truth is, you can’t run a business if you’re broke—and debt increases your risk of going broke when a storm hits. Here’s how to run a business debt-free.

How to Create a Profit-Sharing Plan

It's easy to feel discouraged when trying to compete for top talent and keep your team happy. Learn how a profit-sharing plan can help you build and keep an awesome team even when the market shifts.

To give you the best online experience, Ramsey Solutions uses cookies and other tracking technologies to collect information about you and your website experience, and shares it with our analytics and advertising partners as described in our Privacy Policy. By continuing to browse or by closing out of this message, you indicate your agreement.

How to Create a Small Business Budget in 5 Simple Steps

Want to protect the financial health of your small business? You need a business budget. Here's how to create one.

When you build a business, there are a lot of things to stay on top of, from marketing and finding new  clients  to building a website and establishing your digital presence. But there’s one element that you want to stay on top of from the very beginning—and that’s your business budget.

Having a detailed and accurate budget is a must if you want to build a thriving, sustainable business. But how, exactly, do you create one? What are the steps for business budget planning?

As a small business owner, let’s take a look at how to create a business budget in five simple, straightforward steps.

What’s a Business Budget—and Why Is It Important?

Before we jump into creating a business budget, let’s quickly cover what a business budget is—and why it’s so important for small businesses.

A business budget is an overview of your business funds. It outlines key information on both the current state of your finances (including income and expenses) and your long-term financial goals. Because your budget will play a key role in making sound financial decisions for your business, it should be one of the first tasks you tackle to improve business success.

And, as a  financially savvy owners, you’ll also want to have a budget in place to help you:

• Make sound financial decisions.  In many ways, your business budgets are like a financial road map. It helps you evaluate where your  business finances  currently stand—and what you need to do to hit your financial goals in the future for business growth.
• Identify where to cut spending or grow revenue.  Your business budgets can help you identify areas to decrease your spending or increase your revenue, which will increase your  profitability  in the process, outline unexpected costs, and help your sustain your business goals.
• Land funding to grow your business.  If you’re planning to apply for a business loan or raise funding from investors, you’ll need to provide a detailed budget that outlines your income and expenses.

Now that you understand why budget creation is so important to your business decisions, let’s jump into how to do it.

Business Budget Step 1: Tally Your Income Sources

First things first. When building a small business budget, you need to figure out how much money your business is bringing in each month and where that money is coming from – this will hep create an operating budget based on your business income.

Your sales figures (which you can access using the Profit & Loss report function in FreshBooks) are a great place to start. From there, you can add any other sources of income for your business throughout the month.

Your total number of income sources will depend on your business model.

For example, if you run a  freelance  writing business, you might have multiple sources of income from:

• Freelance writing projects
• A writing course you sell on your website
• Consulting with other writers who are starting small businesses

Or, if you run a brick-and-mortar retail business, you may only have one source of income from your store sales.

However many income sources you have, make sure to account for any and all income that’s flowing into your business—then tally all those sources to get a clear picture of your total monthly income to build your master business budget template.

Business Budget Step 2: Determine Fixed Costs

Once you’ve got a handle on your income, it’s time to get a handle of your costs—starting with fixed costs.

Your fixed costs are any expenses that stay the same from month to month. This can include expenses like rent, certain utilities (like internet or phone plans), website hosting, and payroll costs.

Review your expenses (either via your bank statements or through your FreshBooks reports) and see which costs have stayed the same from month to month. These are the expenses you’re going to categorize as fixed costs.

Once these costs are determined, add them together to get your total fixed and variable costs expense for the month.

TIP:   If you’re just starting your business and don’t have financial data to review, make sure to use projected costs. For example, if you’ve signed a lease for office space, use the monthly rent you will pay moving forward.

Business Budget Step 3: Include Variable Expenses

Related articles.

Variable costs don’t come with a fixed price tag—and will vary each month based on your business performance and activity. These can include things like usage-based utilities (like electricity or gas), shipping costs, sales commissions, or travel costs.

Variable expenses will, by definition, change from month to month. When your profits are higher than expected, you can spend more on the variables that will help your business scale faster. But when your profits are lower than expected, consider cutting these variable costs until you can get your profits up.

At the end of each month, tally these expenses. Over time, you’ll get a sense of how these expenses fluctuate with your business performance or during certain months, which can help you make more accurate financial projections and budget accordingly.

Business Budget Step 4: Predict One-Time Spends

Many of your business expenses will be regular expenses that you pay for each month, whether they’re fixed or variable costs. But there are also costs that will happen far less frequently. Just don’t forget to factor those expenses when you create a budget as well.

If you know you have one-time spends on the horizon (for example, an upcoming business course or a new laptop), adding them to your budget can help you set aside the financial resources necessary to cover those expenses—and protect your business from unexpected costs in the form of a sudden or large financial burden.

On top of adding planned one-time spends to your budget, you should also add a buffer to cover any unplanned purchases or expenses, like fixing a damaged cell phone or hiring an IT consultant to deal with a security breach. That way, when an unexpected expense pops up (and they always do), you’re prepared!

Business Budget Step 5: Pull It All Together

You’ve gathered all of your income sources and all of your revenue and expenses. What’s next? Pulling it all together to get a comprehensive view of your financial standing for the month.

On your businesses master budget, you’ll want to tally your total income and your total expenses (i.e., adding your total fixed costs, variable expenses, cost of goods, and one-time spends)—then compare cash flow in (income) to cash flow out (expenses) to determine your overall profitability.

Having a hard time visualizing what a business budget looks like in action? Here’s an operating budget example to give you an idea of what your new business budget might look like each month:

A Client Hourly Earnings: $5,000 B Client Hourly Earnings: $4,500 C Client Hourly Earnings: $6,000 Product Sales: $1,500 Loans: $1,000 Savings: $1,000 Investment Income: $500

Total Income: $19,500

Fixed Costs

Rent: $1,000 Internet: $50 Payroll costs: $5,000 Website hosting: $50 Insurance: $50 Government and bank fees: $25 Cell phone: $50 Accounting services : $100 Legal services: $100

Total Fixed Costs: $6,425

Variable Expenses

Sales commissions: $2,000 Contractor wages: $500 Electricity bill: $125 Gas bill: $75 Water bill: $125 Printing services: $300 Raw materials: $200 Digital advertising costs: $750 Travel and events: $0 Transportation: $50

Total Variable Expenses: $4,125

One-Time Spends

Office furniture: $450 Office supplies for new location: $300 December business retreat: $1,000 New time tracking software: $500 Client gifts : $100

One-Time Spends: $2,350

Expenses: $12,900

Total Income ($19,500) – Total Expenses ($12,900) = Total Net Income ($6,600)

Above all, once you have a clear sense of your profitability for the month, you can use it to make the right financial decisions for your small business moving forward.

For example, if you realize you’re in the red and spending more than you earn, you might cut your spending and focus on  finding new clients . Alternatively, if your income is significantly higher than your expenses, you might consider investing your profits back into your business (like investing in new software or equipment).

Use Your Business Budget to Stay on Track

Putting in the work to create a budget for your small business may seem like a hassle. But while it takes a bit of time and energy, it’s worth the extra effort. Thorough business budgeting gives you the financial insights you need to make the right decisions for your business to grow, scale, and prosper in the future.

This post was updated in October 2023

Written by Deanna deBara , Freelance Contributor

Posted on June 20, 2017

Freshly picked for you

Thanks for subscribing to the FreshBooks Blog Newsletter.

Expect the first one to arrive in your inbox in the next two weeks. Happy reading!

The Best Free Business Budget Templates in 2024

Published: July 18, 2024

Business budgets are a source of truth for your income and expenses. That includes all the money you spend — from A/B testing your marketing campaigns to your monthly office rent.

In my roles, I’ve needed to create budgets for whole projects and smaller writing projects.

While organizing the numbers may sound difficult, I’ve found that using a business budget template makes the process simple. Plus, there are thousands of business budget templates for you to choose from.

In this article, I’ll share seven budget templates that can help organize your finances. But first, you’ll learn about different types of business budgets and how to create one.

Table of Contents

What is a business budget?

Types of budgets for a business, how to create a business budget, how to manage a business budget, why is a budget important for a business, best free business budget templates.

Free Business Budget Templates

Manage your business, personal, and program spend on an annual, quarterly, and monthly basis.

• Personal Budget Template
• Annual Budget Template
• Program Budget Template

Download Free

All fields are required.

You're all set!

Click this link to access this resource at any time.

A business budget is a spending plan that estimates the revenue and expenses of a business for a period of time, typically monthly, quarterly, or yearly.

The business budget follows a set template, which you can fill in with estimated revenues, plus any recurring or expected business expenses.

For example, say your business is planning a website redesign. You'd need to break down the costs by category: software, content and design, testing, and more.

Having a clear breakdown will help you estimate how much each category will cost and compare it with the actual costs.

I Learned How to Write a Budget Proposal (+ Free Template)

How to Manage Your Entire Marketing Budget [Free Budget Planner Templates]

How a Bottom-Up Budget Can Transform Your Company From Bottom to Top

Marketing Budget: How Much Should Your Team Spend in 2024? [By Industry]

How Marketing Leaders are Navigating Recession [New Data]

3 Ways Marketers are Already Navigating Potential Recession [Data]

Marketing Without a Budget? Use These 10 Tactics [Expert Tips]

24 Ways to Spend Your Marketing Budget Next Quarter

Startup Marketing Budget: How to Write an Incredible Budget for 2023

10 Best Free Project Management Budget Templates for Marketers

6 templates to manage your business, personal, and program spend on an annual, quarterly, and monthly basis.

Marketing software that helps you drive revenue, save time and resources, and measure and optimize your investments — all on one easy-to-use platform

• Search Search Please fill out this field.
• Small Business

6 Steps to a Better Business Budget

A top-notch budget can help propel your business success

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

You've just purchased or opened a small business and you know your trade. But when it comes to bookkeeping—and more specifically, budgeting —your skill set is lacking. The good news is that it is possible to come up with a budget (or at least a good estimation of what will be needed in terms of dollars and cents) fairly easily.

Estimating and matching expenses to revenue (real or anticipated) is important because it helps small business owners to determine whether they have enough money to fund operations, expand the business, and generate income for themselves. Without a budget or a plan, a business runs the risk of spending more money than it is taking in, or conversely, not spending enough money to grow the business and compete.

Key Takeaways

• A business budget helps owners determine if they have enough money to fund operations, expand, and generate income.
• Without a budget, a company runs the risk of spending money it doesn't have, not spending enough to compete, or failing to build a solid emergency fund.
• To create a budget, check industry standards to determine the average costs of doing business and create a spreadsheet estimating the amount of money you'll need to allocate toward your costs.
• Factor in some slack in your budget to cover unexpected costs and review areas where you could cut costs if times get tough.
• Review your budget every few months and shop around for new suppliers to save money on products or services for your business.

Getting Started With a Business Budget

Every small business owner tends to have a slightly different process, situation, or way of budgeting. However, there are some parameters found in nearly every budget that you can employ.

For example, many business owners must make rent or mortgage payments. They also have utility bills, payroll expenses, cost of goods sold (COGS) expenses (raw materials), interest, and tax payments. The point is every business owner should consider these items and any other costs specifically associated with the business when setting up shop or taking over an existing business.

With a business that is already up and running, you can make assumptions about future revenue based on recent trends in the business. If the business is a startup , you'll have to make assumptions based on your geographic area, hours of operation, and by researching other local businesses. Small business owners can often get a sense of what to expect by visiting other businesses that are for sale and asking questions about weekly revenue and traffic patterns.

After you've researched this information, you should then match the business's revenue with expenses. The goal is to figure out what an average weekly expense for overhead, utilities, labor, raw materials, etc. would look like. Based on this information, you may then be able to estimate or forecast whether you'll have enough extra money to expand the business or to tuck away some money into savings. On the flip side, owners may realize that in order to have three employees instead of two, the business will have to generate more in revenue each week.

These six simple tips will help you put together a top-notch small business budget:

1. Check Industry Standards

Not all businesses are alike, but there are similarities. Therefore, do some homework and peruse the internet for information about the industry , speak with local business owners, stop into the local library, and check the Internal Revenue Service (IRS) website to get an idea of what percentage of the revenue coming in will likely be allocated toward cost groupings.

Small businesses can be extremely volatile as they are more susceptible to industry downturns than larger, more diversified competitors. So, you only need to look for an average here, not specifics.

2. Make a Spreadsheet

Prior to buying or opening a business, construct a spreadsheet to estimate what total dollar amount and percentage of your revenue will need to be allocated toward raw materials and other costs. It's a good idea to contact any suppliers you'd have to work with before you continue on. Do the same thing for rent, taxes, insurance(s), etc. It's also important you understand the different types of budgets you'll need to set up for your small business and how to implement them.

3. Factor in Some Slack

Remember that although you may estimate that the business will generate a certain rate of revenue growth going forward or that certain expenses will be fixed or can be controlled, these are estimates and not set in stone. Because of this, it's wise to factor in some slack and make sure that you have more than enough money socked away (or coming in) before expanding the business or taking on new employees.

4. Look to Cut Costs

If times are tight and money must be found somewhere in order to pay a crucial bill, advertise, or otherwise capitalize on an opportunity, consider cost-cutting . Specifically, take a look at items that can be controlled to a large degree. Another tip is to wait to make purchases until the start of a new billing cycle or to take full advantage of payment terms offered by suppliers and any creditors. Some thoughtful maneuvering here could provide the business owner with much-needed breathing and expansion room.

5. Review the Business Periodically

While many firms draft a budget yearly, small business owners should do so more often. In fact, many small business owners find themselves planning just a month or two ahead because business can be quite volatile, and unexpected expenses can throw off revenue assumptions. Establishing a budget planning calendar can be an effective tool for business owners to ensure they have enough capital to meet their business needs.

6. Shop Around for Services/Suppliers

Don't be afraid to shop around for new suppliers or to save money on other services being performed for your business. This can and should be done at various stages, including when purchasing or starting up a business, when setting annual or monthly budgets, and during periodic business reviews.

The Bottom Line

Budgeting is an easy, but essential process that business owners use to forecast (and then match) current and future revenue to expenses. The goal is to make sure that enough money is available to keep the business up and running, to grow the business, to compete, and to ensure a solid emergency fund.

University of California, Irvine, Accounting & Fiscal Services. " Understanding Fiscal Years and Fiscal Periods ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

Flash Sale Savings ⚡

up to 60% off LivePlan Premium. Save Now

0 results have been found for “”

 Return to blog home

A Fast and Easy Way to Build an Expense Budget

Posted may 16, 2019 by noah parsons.

But, to be successful, you’ve got to build a profitable business. That means making sure that you’re spending less than you’re making—unless you’ve got a big pile of money from investors . Even if you do have lots of cash on hand from investors, your goal is still to turn a profit eventually. All of this means creating and managing your expense budget.

We’re talking here about the “expense budget,” but you could also call it a spending budget or an expense forecast, or even projected expenses. All of these labels mean the same thing, so just choose one that works for you and move on.

Your expense budget is one of the keys to good management. Set your budget and then track what you actually spend against that budget. Review the results and revise the budget as necessary. I’ll talk more about how to do that in a bit.

The important thing to remember with budgeting is that you’re making educated guesses, just like every other business owner out there. You don’t need to have a fancy MBA degree or tons of business experience to create a solid budget, and you don’t have to be a fortune teller either. In fact, it’s really very similar to a budget that you might have for your personal finances. Armed with a little knowledge and advice, you’ll be creating an expense budget in no time.

Your expense budget is an important part of your overall financial forecast for your business. It makes up the biggest part of your profit and loss statement , and feeds critical information to your cash flow statement . Don’t worry about that right now, though. We’ll get to that later.

What not to include in your expense budget

The most common mistake entrepreneurs make with their expense budget is including some things that don’t belong there.

It would seem logical that all spending should go in the expense budget, but that’s unfortunately not the case. Expenses are deducted from your sales to determine your profitability, but there are other kinds of spending that belong in different parts of your financial forecast. Here are a few things that you need to make sure to keep out of your expense budget:

Don’t include direct costs

Direct costs, otherwise known as “ cost of goods”  or COGS, belong in your sales forecast , not in your expense budget. Direct costs are essentially what you spend to make your product. Direct costs can be a bit confusing, which is why I wrote a separate guide about that category of spending .

Don’t include asset purchases

When you buy a car, truck, large piece of equipment, or inventory, you’re spending money, but that spending belongs on the balance sheet and the cash flow statement . The same holds true for other asset purchases, improvements you make to your location, and some startup costs. Smaller equipment such as computers and phones can often be expensed, but you should check with the IRS (or your local tax authority) or consult a tax accountant.

Don’t include payments on loans

This one is a bit tricky, but here’s the rule:

The interest you pay on a loan belongs in your expense budget, but the repayment for the principle belongs back on the cash flow statement and will impact your balance sheet.

What you include in your expense budget is nearly everything that’s left over. These are often what are called “operating expenses” and include things like rent, marketing, PR, advertising, and payroll.

Now that you know what not to include, take a few minutes to think about how you might want to organize your expense budget. What is on the list of things that you plan on spending money on? You’ll want to have several categories for your expenses, but you don’t want to have too many categories.

Think about the groups of things that you spend money on and consolidate your list where it makes sense. Also, think about the things that you want to track and keep a close eye on—those things that you want to pay special attention to should have their own categories.

Here are some common expenses to help get you started:

• Interest payments on loans

You can certainly have more categories, and for some businesses, this makes a lot of sense. For example, if you have a large marketing budget, perhaps you want to track it in more granular detail.

So, instead of just “marketing,” you might have:

• Trade shows
• Advertising
• Brochures and samples
• Website maintenance

Use a list of expenses that makes sense for your business. If possible, have the list match the categories in your accounting tool. If you don’t have an accounting system yet, you can later match your accounting system to your business plan’s expense budget.

An example of how to build an expense budget using LivePlan .

How to figure out what the numbers should be

Don’t get hung up thinking that you can’t figure out the numbers, that should go in your expense forecast. At the end of the day, you just need to make some educated guesses and then adjust as you learn more about your business.

Start by doing some research. If you’re just getting started, look at real estate listings to figure out a rough estimate of what your rent might be. Get a quote from an insurance agent to figure out what you might need for your business. Make an estimate about what you might want to spend on marketing.

All it takes is a little research to figure out, roughly, what your expenses are likely to be. Don’t worry about getting it exactly right. You’ll never be 100 percent correct. Instead, focus on “close enough” and then refine and adjust as you grow your business.

Another useful trick is to calculate an expense as a percentage of your sales. This is a common way to calculate some marketing expenses, such as “pay-per-click” advertising. You can estimate that you’ll spend something like 10 percent of every sale on online advertising (or whatever is the right percentage for your industry). Then, as you adjust your sales forecast, your expense budget will automatically adjust appropriately.

Break out payroll into its own list

Because payroll is often one of the largest expenses for a company, it makes sense to calculate that separately from the expense budget and then copy the payroll total into the expense budget.

List out your employees if you don’t have too many, or use categories of people like “customer service” or “sales.” Then input the total salary per month for each person or group on the list.

Don’t forget to pay yourself!

You’ll also want to estimate benefits like health care and payroll taxes as part of your total payroll expense. Use a broad percentage (25 percent is a good guess) to estimate the additional costs of employee benefits. If you want to refine this number, you can research your local and national payroll taxes and figure out more specifically what your other benefits costs might be.

Once you know your total payroll expenses, you can take this number and add it to your overall expense budget.

Track, review, and revise

The goal of setting up an expense budget is to help you make good decisions about your business.

To make your expense budget work for you, make sure to set up a monthly review meeting. Usually, doing this a week or two after the end of the month is a good time. Sit down and see how your actual spending compared to your budget. Did you stay on track? Did you go over budget or come in under? Maybe some over budget and some under.

Also, compare your expenses to what happened the same time last year, or the previous month if you haven’t been in business for a year yet. Check out the trends and adjust course or adjust the budget if necessary.

I use LivePlan for checking on all my numbers because it automates the whole process, but you can also run these reports from your accounting system and use a spreadsheet to see how things are going.

Either way, you’ll probably want to make some changes to your expense budget based on what you find at your monthly review meeting . Perhaps you’ll want to adjust your expense budget, or maybe you’ll want to get certain expenses under control.

Use the budget to guide your business. It will give you the control you need to build a successful business.

For more business concepts made simple, check out these articles on direct costs , cash burn rate , net profit , operating margin , accounts payable , accounts receivable , cash flow , profit and loss statement , and balance sheet .

Editor’s note: This article originally published in 2016. It was updated in 2019.

Like this post? Share with a friend!

Noah Parsons

Posted in growth & metrics, join over 1 million entrepreneurs who found success with liveplan, like this content sign up to receive more.

Subscribe for tips and guidance to help you grow a better, smarter business.

You're all set!

Exciting business insights and growth strategies will be coming your way each month.

We care about your privacy. See our privacy policy .

• Credit cards
• View all credit cards
• Banking guide
• Loans guide
• Insurance guide
• Personal finance
• View all personal finance
• Small business
• Small business guide
• View all taxes

You’re our first priority. Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .

Free Small-Business Budget Templates

Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

A business budget template is one of the most important tools you can use to run your small business. However, many small-business owners skip this vital business management step.

The misconceptions surrounding budgeting are plenty. It seems complicated and time-consuming. But with a good business budget template, the process can be much less daunting.

An effective small-business budget template is a living document. Creating a budget and then forgetting about it is wasted effort. You must compare your actual numbers against your budgeted numbers regularly.

Therefore, your budget should be easy to access and adjust on an ongoing basis. But you don’t have to spend a lot of money on business budgeting software , if you don't want to. There are several free small-business budget templates available online.

advertisement

QuickBooks Online

Additional pricing tiers (per month): $65, $99, $235.  

Why you need a business budget template

A business budget template is an essential tool for business owners who want to take care of their bottom line. Why should you invest in a smart template from the start?

Here's how a business budget template can set you up for success:

Track cash flow, expenses and revenue.

Prepare for regular business slowdowns.

Allocate your budget to the portions of your business that need capital most.

Plan for business investments and purchases.

Project all costs to starting and running your business.

Generally speaking, your business budget template can act as a business health scorecard if you invest in setting one up properly. Here's our list of the best budget templates available so you can do just that.

Capterra’s Free Small-Business Budget Template

The Capterra small-business budget template has been a fan favorite since it was published in 2015. In this one simple Excel workbook, you can create your monthly budget, your annual budget and then compare your actual numbers to your budgeted numbers. It also has a convenient overview sheet, which gives users access to their performance at a glance.

To help you through the process, Capterra has included a detailed Instructions tab, which walks you through how to use the template step by step. Start here to save yourself hours of time and frustration. As a bonus, there are several resources linked on the Instructions tab to help you create the perfect budget for your small business.

PDFConverter.com 15 Best Budgets

Rather than one bloated Excel workbook that tries to do everything, PDFConverter.com has compiled a library of 15 small-business budget templates.

These templates cover a wide range of budgeting needs, from a basic overview of your business income and expenses to marketing budget templates. The startup budget template is ideal for newbie entrepreneurs still in the planning stage of their businesses. And the cash flow template is perfect for identifying and plugging cash flow leaks.

» MORE: The best accounting software for startups

Annual Business Budget in Google Sheets

Do you love all things Google? You can create a comprehensive budget for your small business right from Google Sheets. Simply navigate to your Sheets and then click on Template Gallery . Our friends at Intuit QuickBooks have created an annual business budget you can use for free.

To fully appreciate the power of the template, review the Summary tab after you have entered your budget figures. The tables and graphs on this tab offer a visual representation of your income and expenses, making it easy to see where you stand at a glance.

Microsoft Office Template

This beautiful template from Microsoft Office focuses exclusively on expenses, but it does that job exceptionally well. There are tabs for planned and actual expenses, a tab for automatically calculated variances between the two and an expense analysis tab complete with pie charts.

Your accounting software

While not a free template per se, you likely have a powerful budgeting tool available right inside your business accounting software . Though not as flexible as a separate template, there are many advantages to using the budgeting feature of your accounting software.

The budgeting feature in your accounting software will coincide with your chart of accounts. Depending on the software you use, you can create a budget to actual comparison reports with the click of a button, making analysis a cinch.

Some software programs even let you set multiple budget scenarios and have “cloning” features, which simplify the budgeting process after the first year.

Designing your budget

Now that you’ve chosen your business budget template, it’s time to start designing your budget. This is where many small-business owners procrastinate because people typically see budgeting as restrictive or punishing.

It's time to shift your perspective on budgeting. Most people start with income and tinker with their expense amounts until they arrive at a balanced or surplus budget. This method usually leads to unrealistic projections and ends in frustration.

Instead of a top-down approach, consider “reverse engineering” your budget by following these four simple steps:

Form your income projections and write those down outside of your budget template. Put this paper or spreadsheet away until after you have completed the next step.

Enter your expenses into your budget template. Be very honest in your entries and include everything. Going through several months’ or even a year’s worth of accounting data or bank and credit card statements will ensure you capture all your spending. This is not the step where you want to try to eliminate expenses. Record everything, only excluding expenses you have already eliminated from your monthly or annual spending.

Enter your income from the projections you formed in step 1.

Review your budget. If your budget shows a projected loss, analyze your expenses and identify areas where you can reduce spending.

This approach makes sure you avoid the temptation of forcing your budget to balance. While you do want your budget to balance — or better, to show a cash surplus — having unrealistic income or expense numbers will lead to frustration and resistance during the budgeting process.

Monthly or quarterly, compare your actual income and expense numbers to your budgeted numbers. Regular tracking helps identify financial pitfalls before they become unmanageable.

Frequently asked questions

How do i make a budget template.

You can create a small-business budget template from scratch by using free software like Microsoft Excel or Google Sheets. However, it’s often more efficient to download a template (see our list above). A template with built-in tables and formulas makes plugging in your revenue and expenses and calculating your profit or loss quick and straightforward.

What is included in a small-business budget?

Your small-business budget will include your revenue, expenses and your profit or loss. Each section will be broken into subcategories. For example, under revenue, you might have sales and income from sponsorships. Expenses might be broken down into rent, employee salaries and marketing. After you tally your revenue and expenses, you can then calculate your profit and loss statement.

How much should a small-business budget be?

A budget will vary by your business and industry. For example, you can potentially start a social media consulting business for less than $5,000. But a food truck business may necessitate a budget of at least $50,000. You must tailor your small-business budget to your unique needs.

On a similar note...

• Business Essentials
• Leadership & Management
• Credential of Leadership, Impact, and Management in Business (CLIMB)
• Entrepreneurship & Innovation
• Digital Transformation
• Finance & Accounting
• Business in Society
• For Organizations
• Support Portal
• Media Coverage
• Founding Donors
• Leadership Team

• Harvard Business School →
• HBS Online →
• Business Insights →

Business Insights

Harvard Business School Online's Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills.

• Career Development
• Communication
• Decision-Making
• Earning Your MBA
• Negotiation
• News & Events
• Productivity
• Staff Spotlight
• Student Profiles
• Work-Life Balance
• AI Essentials for Business
• Alternative Investments
• Business Analytics
• Business Strategy
• Business and Climate Change
• Creating Brand Value
• Design Thinking and Innovation
• Digital Marketing Strategy
• Disruptive Strategy
• Economics for Managers
• Entrepreneurship Essentials
• Financial Accounting
• Global Business
• Launching Tech Ventures
• Leadership Principles
• Leadership, Ethics, and Corporate Accountability
• Leading Change and Organizational Renewal
• Leading with Finance
• Management Essentials
• Negotiation Mastery
• Organizational Leadership
• Power and Influence for Positive Impact
• Strategy Execution
• Sustainable Business Strategy
• Sustainable Investing
• Winning with Digital Platforms

How to Prepare a Budget for an Organization: 4 Steps

• 16 Nov 2021

An organization’s budget dictates how it leverages capital to work toward goals. For this reason, the ability to prepare a budget is one of the most crucial skills for any business leader —whether a current or aspiring entrepreneur, executive, functional lead, or manager.

Before preparing your first organizational budget, it’s important to understand what goes into a budget and the key steps involved in creating one.

What Is a Budget?

A budget is a document businesses use to track income and expenses in a detailed enough way to make operational decisions.

Budgets are typically forward-looking in nature. Income is based on projections and estimates for the periods they cover, as are expenses. For this reason, organizations often create both short- (monthly or quarterly) and long-term (annual) budgets, where the short-term budget is regularly adjusted to ensure the long-term budget stays on track.

Access your free e-book today.

Most organizations also prepare what’s known as an “actual budget” or “actual report” to compare estimates against reality following the period covered by the budget. This allows an organization to understand where it went wrong in the budgeting process and adjust estimates moving forward.

Budget vs. Cash Flow Statement

If the definition above sounds similar to a cash flow statement , you’re right: Your organization’s budget and cash flow statement are similar in that they both monitor the flow of money into and out of your business. Yet, they differ in key ways.

First, a budget typically offers more granular details about how money is spent than a cash flow statement does. This provides greater context for making tactical business decisions, such as considering where to trim business expenses.

Related: The Beginner’s Guide to Reading & Understanding Financial Statements

Second, a budget is, quite literally, a tool used to direct work done within an organization. The cash flow statement plays a different role by offering a higher-level overview of how money moves into, throughout, and out of an organization.

Instead of thinking of the two documents as competing, view them as complementary, with each playing a role in driving your business’s performance.

Steps to Prepare a Budget for Your Organization

The steps below can be followed whether creating a budget for a project, initiative, department, or entire organization.

1. Understand Your Organization’s Goals

Before you compile your budget, it’s important to have a firm understanding of the goals your organization is working toward in the period covered by it. By understanding those goals, you can prepare a budget that aligns with and facilitates them.

Related: The Advantages of Data-Driven Decision-Making

For example, consider a business that regularly experiences year-over-year revenue growth that’s offset by rising expenses. That organization might benefit from focusing efforts on better controlling expenses during the budgeting process.

Alternatively, consider a company launching a new product or service. The company may invest more heavily in the fledgling business line to grow it. With this goal, the company may need to trim expenses or growth initiatives elsewhere in its budget.

2. Estimate Your Income for the Period Covered by the Budget

To allocate funds for business expenses, you first need to determine your income and cash flow for the period to the best of your ability.

Depending on the nature of your organization, this can be a simple or complicated process. For example, a business that sells products or services to known clients locked in with contracts will likely have an easier time estimating income than a business that depends on active sales activity. In the second case, it would be important to reference historical sales and marketing data to understand whether the market is changing in a way that might cause you to miss or exceed historical trends.

Related: How to Read & Understand an Income Statement

Beyond income from sales activity, you should include other income sources, such as returns on investments, asset sales, and bond or share offerings.

3. Identify Your Expenses

Once you understand your projected income for the period, you need to estimate your expenses. This process involves three main categories: fixed costs, variable expenses, and one-time expenses.

Fixed costs are any expenses that remain constant over time and don’t dramatically vary from week to week or month to month. In many cases, those expenses are locked in by some form of contract, making it easy to anticipate and account for them. This category usually includes expenses related to overhead, such as rent payments and utilities. Phone, data, and software subscriptions can also fall into this category, along with debt payments. Any expense that’s regular and expected should be included.

Related: 6 Budgeting Tips for Managers

Variable expenses are those your business incurs, which vary over time depending on several factors, including sales activities. Your shipping and distribution costs, for example, are likely to be higher during a period when you sell more product than one when you sell less product. Likewise, utilities such as water, gas, and electricity will be higher during periods of increased use. This is especially true for businesses that manufacture their own products. Sales commissions, materials costs, and labor costs are other examples of variable expenses.

Both fixed expenses and variable expenses are recurring in nature, making it easy to account for them (even if variable expenses must be projected). One-time expenses , also called “one-time spends,” don’t recur and happen more rarely. Purchasing equipment or facilities, developing a new product or service, hiring a consultant, and handling a security breach are all examples of one-time expenses. Understanding major initiatives—and what it will take to accomplish them—and what you’ve spent in previous years on similar expenses can help account for them in your budget, even if you’re unsure of their exact values.

4. Determine Your Budget Surplus or Deficit

After you’ve accounted for all your income and expenses, you can apply them to your budget. This is where you determine whether you have enough projected income to cover all your expenses.

If you have more than enough income to cover your expenses, you have a budget surplus. Knowing this, you should determine how to use additional funds best. You may, for example, move the money into a rainy day fund you can access should your actual income fall short of projections. Alternatively, you may deploy the funds to grow your business.

On the other hand, if your expenses exceed your income, you have a budget deficit. At this point, you must identify the best path forward to close the gap. Can you bring in additional funds by selling more aggressively? Can you lower your fixed or variable expenses? Would you consider selling bonds or shares of company stock to infuse the business with additional capital?

An Important Financial Statement

The person responsible for generating a budget varies depending on an organization’s nature and its budgetary goals. An entrepreneur or small business owner, for example, is likely to prepare an organizational budget on their own. Meanwhile, a larger organization may rely on a member of the accounting department to generate a budget for the entire business. Individual department heads or functional leads might also be called on to submit budget proposals for their teams.

With this in mind, anyone who aspires to start their own business or move into an organizational leadership position can benefit from learning how to prepare a budget.

Do you want to take your career to the next level? Consider enrolling in our eight-week Financial Accounting course or three-course Credential of Readiness (CORe) program to learn financial concepts that can enable you to unlock critical insights into business performance and potential. Not sure which course is right for you? Download our free flowchart .

About the Author

Free Annual Business Budget Templates

By Andy Marker | January 6, 2021

• Share on Facebook
• Share on LinkedIn

Link copied

We’ve compiled the most useful free annual business budget templates, including those for established companies, startups, and marketing teams. You’ll also learn more about what goes into creating an annual business budget. 

Included on this page, you'll find an annual business budget template , a first-year budget calculator , an annual startup business budget template , and an annual marketing budget template . Plus, we offer helpful tips for using an annual business budget template .

Annual Business Budget Template

Download Annual Business Budget Template

Excel | Google Sheets

Use this easy-to-fill annual budget template to gain year-over-year insight into your business’s expenditures and revenue. Enter planned employee, office, marketing, training, and travel costs, and use the respective tabs to track actual expenses and calculate your expense variance (the disparity between planned and actual expenses). A unique expense analysis tab provides a dashboard view of your planned vs. actual expenses, variance, and variance percentage. 

If you are looking for budget templates for nonprofits, check out this article for a vast variety of budget templates suitable for any nonprofit organization. 

First-Year Budget Calculator

Download First-Year Budget Calculator

Use this simple first-year budget calculator to determine whether your budding business has adequate resources to meet its financial obligations. Enter operating expenses (e.g., operations, marketing, occupancy, inventory, etc.) and employee salaries to compare startup costs to monthly expenditures. This first-year budget calculator features a section for personal finance details and how they might affect your organization’s overall budget outlook.

Annual Operating Budget Template

Download Annual Operating Budget Template

Use this annual operating budget template to gain year-over-year insight into how your organization’s expenditures relate to revenue. Enter total income, total expenses, and total savings to arrive at your month-by-month net income. Add salary or details, any interest income, refunds and reimbursements, and any other miscellaneous costs to help identify budgeting shortfalls and ensure your business is on sound fiscal footing.

You can find more operating budget templates in this article .

First-Year Startup Budget Calculator

Download First-Year Startup Budget Calculator

This template is ideal for startup companies that want to contrast their funding with expenditures to avoid any financial shortfalls. Use this template to ensure that your first-year budgeting calculations (startup costs, operational expenses, estimated and actual income, and any personal expenses) are as accurate as possible. Save this calculator as a one-off file with customized entries, or share it as a template with team members to standardize budgeting practices. 

Annual Startup Business Budget Template

Download Annual Startup Business Budget Template

Gain a year-over-year perspective of annual revenue vs. expenses with this startup-specific annual business budget template. Enter revenue (sales, commissions, and investments, etc.), expenses (salaries/wages, operations, marketing, etc.) and use the Summary tab’s dashboard-like view to see current budgeted expenses compared to actual revenue. Get a grasp on the bottom line by itemizing each expense and revenue source. Then, use that data to monitor your proximity to profitability.  To find more, please refer to our collection of free startup budget templates  and free small business budget templates . 

Printable Annual Budget Report Template

Download Printable Annual Budget Report Template 

Excel |  Word | PDF

Gain important insights into the overall health of your company’s budget with this print-friendly month-by-month and year-over-year budget report. Enter income (salaries, dividends/interest, etc.) and expenditures to determine your organization’s true annual income. You can share this annual budget report template as a one-off budget report, or use it as a template to fit all annual budget reporting needs.  

Annual Marketing Budget Template

Download Annual Marketing Budget

This annual budget template is designed specifically for marketing organizations — use it to compare estimated marketing campaign costs against actual costs. Enter expenses (national and local marketing, public relations costs, content marketing, social media, advertising, etc.) to get an overview of where you need to reign in costs to meet marketing budget goals. This template, with line-by-line, pre-filled, marketing-specific expenses, takes the guesswork out of accounting for each cost. You can also customize this budget template to meet your needs.

Why You Need an Annual Business Budget Template

An annual business budget template offers a single or year-over-year comparison of expenditures compared to revenue. The pre-filled information in an annual business budget template guides you through the annual budgeting process, so you can leverage pre-set criteria to gain insight into the accuracy of business’s expenses and revenue sources. 

In short, an annual business budget template provides you with visibility into your business’s true financial picture with an easy-to-use, pre-set list of projected and actual expenditures and revenue sources, and any differences between them. An annual business budget template allows you to enter planned salary, office space, marketing, training, and travel costs in order to calculate at your expense variance. 

While annual budget templates are useful for evaluating expenditures vs. revenues annually, you can also assess your budget’s feasibility quarterly or over your first business year. This information can help you create a budget that allows your business to continue operating with a sound financial outlook.

Tips for Using an Annual Business Budget Template

An annual business budget template features detailed, line-by-line lists of pre-set expenses and income. Use a completed budget to project the cost of year-by-year operations compared to available resources in order to justify your operational expenses. 

Use the preset criteria in an annual business budget template to determine the overhead and administrative costs related to your products or services and to make any adjustments. 

To ensure that you account for your business’s expenditures compared to potential — and actual — revenue, an annual business budget template should include the following sections: 

• Employee Costs: This is a line-by-line account of projected and actual labor-related business expenses (e.g., salaries, wages, benefits, insurance, bonuses, etc.).  
• Office Costs: This cost refers to the planned and actual occupancy costs (e.g., lease, electric, water, internet access, office supplies, security, etc.) of your establishment. 
• Marketing Costs: Include any anticipated marketing budget details (e.g., website hosting, collateral production, trade shows, etc.).
• Training/Travel Costs: Enter employees’ training costs (classes, webinars, certifications, etc.) and any related travel expenses. 
• In-House Income: Add the planned and projected revenue sources (e.g., sales, fees, commission, service charges, etc.). 
• Investment Income: This section covers funding from banks (dividends, loans, interest, etc.) and investor contributions. 
• Expense Variance: Determine the difference between projected and actual expenses.  
• Income Variance: Identify the difference between projected and actual expenses.
• Summary: Get the big picture of your business’s budget, as well as the variance between anticipated and actual expenses and income sources, so that you can continue to operate successfully. 

Additionally, be sure to consider one-time costs in your annual business budget. Seasonal costs may also impact your budget, as well as any promotional events on which you plan to spend more on advertising or marketing campaigns to boost sales. These expenses can affect your business’s annual revenue projections.

Better Manage and Track Annual Business Budgets with Smartsheet

Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

Discover why over 90% of Fortune 100 companies trust Smartsheet to get work done.