A How-To Guide for Creating a Business Budget Bench Accounting

what is business budget

For example, if a manufacturing company has to use more machine hours in March vs February, then its budget should logically increase in March. Conversely, if it uses them for few hours, its budget should reflect that decline. Therefore, most companies that have variable business costs each month or even quarterly have flexible budgets.

  • From there, you can make informed business decisions and pivot accordingly.
  • A budget is a detailed plan that outlines where you’ll spend your money monthly or annually.
  • If you have more than enough income to cover your expenses, you have a budget surplus.
  • We also allow you to split your payment across 2 separate credit card transactions or send a payment link email to another person on your behalf.

A business budget estimates future revenue and expenses in detail, so that you can see whether you’re on track to meet financial expectations for the month, quarter or year. Think of your budget as a point of comparison — you run your actual numbers against it to determine if you’re over or under budget. Estimate costs for raw materials and packaging based on historical data. Be sure to account for any planned expansion or expected growth in sales.

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Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. Without a budget, you may not know how your business is performing. Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

what is business budget

One of the first steps in any budgeting exercise is to look at your existing business and find all of your revenue sources. Add all those income sources together to determine how much money comes into your business monthly. It’s important to do this for multiple months and preferably for at least the previous 12 months, provided you have that much data available. If your small business doesn’t have access to these features or has simple financials, you can download free small-business budget templates to manually create and track your budget. Many budgets also include actual figures going back several quarters or years as a comparison for what is being projected for the upcoming quarter or year. Most accounting software has options for budgeting/forecasting.

Set aside a contingency fund for unexpected costs

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. 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.

Our partners cannot pay us to guarantee favorable reviews of their products or services. We believe everyone should be able to make financial decisions with confidence. Learn more about how a business budget works and get an example of one.

A business budget estimates an organization’s revenue and expenses over a specific period of time. For a more powerful and faster approach, use financial planning software for your ledgers, invoices and receipts. Software can make the budgeting and planning process less labor-intensive and keep all financial data in one central location.

what is business budget

You and your finance teams can easily access up-to-date information to create budgets and forecasts for what-if scenarios. It can be a collaborative process while also providing simple-to-understand reports and dashboards. Now you have your income and spending estimates, you can start to understand the profitability of your business. For example, if your budget is in the red, you may need find new areas to cut spending and new ways to bring in new clients or sell more goods and services. You can examine different scenarios, such as investment opportunities and monitor their effects on the budget more easily.

How Business Budgets Work

Your business budget should be detailed enough to give you a clear picture of income and expenses. But you don’t need to write out the specific amount for paper clips, highlighters and pens separately. 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. 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.

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.

Examine your revenue

Use the budget to set goals and better understand what revenue you’ll need to generate in order to cover expected costs. Monitor your progress regularly and track actual spending and revenue versus projections. Business budgets look at how much cash you have and how much you’ll need. A budget is a tool for you to predict if you’ll have more funds coming in than you pay out. And you may want to underestimate your financial performance, or create separate conservative, middle-of-the-road and ambitious budgets.

How to Build a Budget

Creating a business budget will make operating your business easier and more efficient. A business budget can also help ensure you’re spending money in the right places and at the right time to stay out of debt. Different circumstances might warrant different approaches to your budget processes.

While you’re at it, consider any international warehousing costs and duties. These are startup costs like moving offices, equipment, furniture, and software, as well as other costs related to launch and research. A budget is a detailed plan that outlines where you’ll spend your money monthly or annually.

This gives you a snapshot of your budget that’s easy to find without diving into layers of crowded spreadsheets. 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. 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.

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