How to Create a Simple Business Budget That Works

Mar 6

Key Takeaways

A business budget helps track income, expenses, and profitability.
Start with estimating income, listing fixed and variable expenses, and planning for unexpected costs.
Regularly reviewing and adjusting your budget keeps your business financially healthy.
A budget prevents cash flow problems and helps you make informed business decisions.
Use simple tools like spreadsheets or budgeting apps to keep things manageable.

Why Every Business Needs a Budget

A budget is the financial roadmap of your business. Without one, you’re driving blind, which often leads to poor cash flow management, unexpected expenses, and financial stress. A good budget helps you:

Stay on top of expenses
Prepare for slow seasons
Plan for growth
Make informed financial decisions

Many small business owners avoid budgeting because they think it's too complicated. But the truth is, creating a budget can be simple and effective if you follow a structured approach.

Step-by-Step Guide to Creating a Simple Business Budget

1. Estimate Your Income

The first step in creating a business budget is knowing how much money you expect to bring in.

Review past income: If you’ve been in business for a while, look at your past revenue. Consider trends and seasonal fluctuations.
For new businesses: If you don’t have past data, estimate your income based on market research, competitor analysis, or projected sales.
Be conservative: It’s always better to underestimate income and be pleasantly surprised than to overestimate and fall short.

💡 Example: If you run a freelance design business and made $5,000 per month last year but expect to sign two new clients, you might conservatively estimate $6,000 per month.

2. List Your Fixed Costs

Fixed costs are expenses that stay the same every month, no matter how much business you do.

Common fixed costs include:

Rent or office space
Salaries (if you have employees)
Insurance
Software subscriptions (QuickBooks, Zoom, Canva, etc.)
Loan payments

💡 Example: If you rent a co-working space for $300/month and pay for accounting software at $50/month, your total fixed costs are $350/month.

3. Identify Variable Expenses

Variable costs fluctuate depending on how much business you do. These expenses can be controlled or reduced when needed.

Common variable costs include:

Raw materials or supplies
Advertising and marketing
Utilities (electricity, internet, etc.)
Freelancers or contractors
Shipping costs

💡 Example: If you sell handmade jewelry, your supply costs will vary depending on the number of orders you receive each month.

4. Plan for Unexpected Costs

Every business faces surprise expenses. Building a financial cushion into your budget ensures you won’t be caught off guard.

Emergency fund: Aim to set aside at least 10% of your monthly revenue for unexpected costs.
Common unexpected expenses: Equipment repairs, price increases from vendors, sudden drops in sales.

💡 Example: If you earn $5,000 per month, setting aside $500 as an emergency buffer can help cover surprise costs.

5. Set Financial Goals

A budget isn’t just about covering expenses—it should also help you plan for growth.

Want to hire an employee? Factor in their salary and benefits.
Planning to upgrade equipment? Allocate funds gradually rather than making a big, unexpected purchase.
Looking to expand marketing efforts? Set a dedicated monthly marketing budget.

💡 Example: If you want to launch a new product in six months and need $3,000 for marketing, set aside $500 per month in your budget.

6. Choose a Simple Budgeting Tool

There’s no need for complicated software. Choose a method that works best for you:

Spreadsheets (Google Sheets, Excel): Simple, customizable, and free.
Accounting software (QuickBooks, Wave, FreshBooks): Ideal for automation and financial tracking.
Apps (PocketGuard, Mint, YNAB): Good for monitoring cash flow on the go.

💡 Example: If you prefer a DIY approach, start with a Google Sheets template and track your income, expenses, and savings.

7. Review and Adjust Your Budget Regularly

Your business will evolve, and so should your budget.

Check monthly: Compare your actual income and expenses with your budget.
Adjust as needed: If you overspend in one category, cut back in another.
Make data-driven decisions: If marketing is bringing in high returns, consider increasing that budget.

💡 Example: If your advertising campaign is generating more leads than expected, you might decide to invest an additional $200 per month in ads.

Final Thoughts

Budgeting doesn’t have to be complicated. A simple, realistic budget keeps your business finances in check, helps you plan for growth, and prevents financial stress. By following these steps, you’ll have a clear financial roadmap for your business success.

💡 Pro Tip: Review your budget at least once a month and adjust as needed to stay on track!

Sigrid Wardlaw