Small Business Budgeting: Creating and Sticking to a Financial Plan

• Step 1: Calculate Your Income
  • The first step in creating a budget is to determine your total income. This includes all revenue streams your business generates: sales, services, or other sources. Accurate accounting records are essential here, as they provide the data needed to assess your business’s financial health. Your profit and loss statements are a good starting point for aggregating this information.

• Step 2: Identify Fixed Costs
  • Fixed costs are expenses that remain consistent throughout the year, such as rent, salaries, insurance, and loan payments. These costs are predictable and should be accounted for in your budget. By subtracting your fixed costs from your total income, you can determine how much money is left for other expenses.

• Step 3: Account for Variable Expenses
  • Unlike fixed costs, variable expenses fluctuate depending on production levels, sales volume, or seasonal changes. Examples include material costs, commissions, and utility bills. Accurately review past invoices and receipts to estimate monthly amounts. Keep an eye on these expenses, as they can significantly impact your bottom line.

• Step 4: Prepare for Emergencies and One-Time Expenses
  • Unexpected costs can derail even the best-laid plans, so it’s wise to set aside a portion of your budget for emergencies and one-time expenses. This could include equipment repairs, sudden market changes, or unforeseen business opportunities. You can mitigate their impact on your business’s financial stability by planning for these possibilities.

• Step 5: Create a Profit and Loss Statement
  • A profit and loss (P&L) statement is a high-level overview that shows whether your business is making or losing money. To create one, subtract your total expenses (fixed, variable, and emergency) from your total income.

• Step 6: Draft Your Budget
  • With all the necessary information, you’re ready to draft your budget. This document should outline your projected income and expenses for the next year, quarter, or month, depending on your business needs. Many small businesses find that quarterly budgets provide the flexibility to adjust to changing conditions without becoming overwhelming.

Tips for Sticking to Your Budget

Creating a budget is only half the battle; sticking to it is where many businesses falter. Here are some strategies to help you stay on track:

• Monitor Regularly: Keep an eye on your budget by comparing actual income and expenses against your projections. Regular reviews allow you to spot trends, make adjustments, and avoid overspending.
• Be Flexible: While it’s important to stick to your budget, it’s equally important to be flexible. If certain areas consistently deviate from your projections, adjust your budget accordingly.
• Use Technology: Modern accounting software can simplify the budgeting process. They can automate calculations, track expenses, and generate reports.
• Plan for Seasonality: Many businesses experience fluctuations in revenue and expenses due to seasonal factors. Be sure to account for these in your budget to avoid cash flow issues during slower periods.
• Seek Professional Advice: If you’re unsure about any aspect of your budget, don’t hesitate to consult with a financial adviser or accountant. They can provide valuable insights and help you create a budget that’s tailored to your business’s specific needs.

The Bottom Line

A well-crafted budget is more than just a financial plan—it’s a tool to help you achieve your business goals. By creating a detailed budget and committing to regular reviews, you can ensure that your small business remains on a solid financial footing, ready to grow and thrive.

Need a hand mastering your business finances? We’re here to help you every step of the way. Call Retinue to get started: 1800 861 566.