How to Create a Business Budget That Works (Plus Expert Insights)

Being a business owner requires many areas of expertise, including becoming savvy with your finances. 

Creating a business budget is one of the most essential steps for achieving long-term financial success.

Whether you're launching a startup or running an established company, a well-crafted budget serves as your financial roadmap, helping you:

• Manage resources,
• Anticipate challenges,
• And seize growth opportunities.

By setting clear financial goals and tracking your income and expenses, you can make (1) informed decisions, (2) avoid unnecessary debt, and (3) ensure your business stays on the right path.

With this in mind:

In this guide, I'll explain the key elements of creating a business budget that truly works.

8 reasons why the budgeting process is important

(Everything, including budgeting, starts with a strong “why”, after all!)

Budgeting is crucial for both individuals and businesses because it provides a clear financial framework that helps manage money effectively and achieve long-term goals.

Here are eight reasons why budgeting is essential:

1. Financial control: A budget gives you control over your finances by tracking income and expenses, helping you avoid overspending and ensuring you allocate resources effectively.
2. Goal setting: It allows you to set financial goals, whether for savings, investments, or business growth and provides a plan to achieve them.
3. Cost management: By identifying and prioritizing necessary expenses, a budget helps reduce unnecessary spending, ensuring that money is spent on things that matter most.
4. Improved decision-making: Budgeting provides a clear picture of your financial health, enabling better decisions about investments, savings, and potential cost-cutting measures.
5. Cash flow management: A budget helps monitor cash flow, ensuring you have enough funds available to cover regular expenses, especially in businesses with variable income patterns.
6. Preparedness for emergencies: It encourages setting aside funds for unexpected costs, helping you avoid financial strain during emergencies or downturns.
7. Debt reduction: A budget allows you to allocate resources for repaying debt systematically, preventing it from becoming overwhelming.
8. Future planning: Budgeting provides insight into how much a business can invest in growth, such as new products, marketing, or expansion, without risking financial stability.

Overall, budgeting is essential for maintaining financial health, avoiding debt, and ensuring long-term financial security.

A step-by-step guide to creating a business budget

Let's get started!

Creating a business budget involves a structured approach that helps you manage finances effectively and plan for future growth.

Here's a step-by-step guide to creating a business budget:

1. Review historical data (if available): If your business is already established, analyze previous financial statements, such as income and cash flow reports, to understand your revenue, expenses, and trends. If you're starting a new business, use market research and industry benchmarks to make informed estimates.
2. Estimate your revenue: Forecast your expected income based on past performance or research for the upcoming period. Include all revenue streams, such as sales, services, and other income sources. Be conservative in your estimates to avoid overestimating income.
3. List fixed costs: Identify recurring business expenses that remain the same each month. These may include rent, utilities, employee salaries, insurance, loan payments, and subscriptions.
4. Identify variable costs: Determine variable expenses that fluctuate based on business activities, such as raw materials, production costs, shipping fees, and commissions. These costs vary depending on sales or service demand.
5. Set aside funds for one-time or unexpected expenses: Plan for any irregular or one-time costs, such as purchasing equipment, launching a marketing campaign, or dealing with repairs. Also, consider creating an emergency fund for unexpected expenses.
6. Determine profit margin goals: Set clear profit goals for your business to ensure financial health. Your budget should aim to cover all costs and generate enough profit to sustain and grow the business.
7. Monitor cash flow: Track how money flows in and out of your business, ensuring that your revenue covers expenses and you have enough liquidity to operate smoothly. Keep an eye on seasonal trends that could impact cash flow.
8. Allocate for taxes: Estimate your tax liability based on your projected revenue and set aside enough funds to cover income, payroll, sales, or other applicable business taxes.
9. Review and adjust regularly: Your budget is a living document, so it's essential to review it regularly. Adjust your projections and expenses as your business grows, markets change, or unexpected costs arise.

By following these steps, you can create a business budget that helps you manage your finances effectively and prepare for future growth.

Starting a business? Learn more about branding in our article “The Power of Strategic Branding: 5 Lessons from Daniel Meursing, Founder of Premier Staff.”

Some helpful info: the 50/30/20 rule of budgeting

The 50/30/20 rule of budgeting is a simple and practical guideline for managing your finances. It divides your income into three main categories:

1. 50% for needs: This portion covers essential expenses like rent or mortgage, utilities, groceries, insurance, and any other necessities.
2. 30% for wants: These are non-essential expenses like dining out, entertainment, travel, or hobbies—things that add enjoyment but aren't crucial for living.
3. 20% for savings and debt repayment: The final portion should be allocated towards savings, investments, or paying off debt to build financial security over time.

This rule helps maintain a balanced approach to spending and saving, ensuring your essential needs are met while still allowing room for enjoying life and planning for the future.

Insights from the experts

Sometimes, hearing from those who have already done the work can be useful.

That's why I took some time to contact other business owners and experts who can comment on effective budgeting.

Here's what they had to say:

1. Mimi's 3 tips for creating a business budget

"Tip #1: learn sales projection! Take a step back and look at what you could realistically sell instead of just listing down costs. This will make your business budget more aligned with reality.

We've been in business for 5+ years, and one of the first few things we learned was to start with sales projection. We initially focused too much on sourcing, packing, labor, marketing, etc. – things we knew we had to spend on. 

Then, we invested in data analysis, and things finally started to make sense. We were able to plan marketing as well as manufacturing, which helped to make our budgets more realistic.

Tip #2: Ditch the rigid budgeting!

No matter how perfect you think your budget is, things will happen, so a business budget must be flexible. For us, instead of sticking rigidly to our original budget for each product line we had, we were more open to adjusting the budget based on what was actually happening in the market. This made us quickly adapt when trends shifted. 

For example, right now, people are looking for healthier coffee alternatives, so mushroom coffee and even beanless coffee are both something we're currently looking into.

Tip #3: Customer feedback is invaluable for budgeting decisions, invest in this!

Reach out to your customers, this can be through simple surveys or via social media. Taking feedback seriously, listening to what your customer wants, and aligning your budget to what they're looking for… all these will make your business have smarter spending choices.

Customer feedback can also help you find new ways to make money! Lots of our customers asked for a different flavor other than black and milk for our instant coffee packs, so we developed a coconut milk version of it. This opened up a fresh revenue source for us and is keeping us ahead of other businesses." - Mimi Nguyen, Founder of Cafely.

2. Michael highlights the advantages of a cost-benefit analysis

"When I first started helping small businesses with their budgets, I quickly realized that there's no one-size-fits-all solution. Each business has its own unique challenges and opportunities, but I often turn to a method that's been really effective for many: using cost-benefit analysis.

I remember working with a client who felt overwhelmed by their expenses. We sat down and listed every single cost they had. It was eye-opening — some expenses were absolutely necessary, while others were just nice to have. 

By prioritizing those expenses through a cost-benefit lens, I could show them where to cut back without sacrificing growth.

This approach allows me to weigh potential returns against their costs, which leads to more informed decisions. In the end, we crafted a budget that not only aligned with their goals but also gave them the confidence to invest in areas that really mattered." - Michael Schmied, Senior Financial Analyst at Kredite Schweiz.

3. Stephen suggests using "budget diaries" for significant savings

"Keeping something I like to call a ‘budget diary’ can really change the game for any business trying to manage its finances better. 

The concept is straightforward: have each team member track every single expense for a month, no matter how small. This practice helps everyone become more mindful about spending, and it can reveal surprising patterns.

To give you a personal example, an employee of mine found that their daily coffee runs were racking up nearly $100 a month. We discussed this and ended up setting up a coffee fund, which saved us money and also brought the team together over a shared perk.

The budget diary can also uncover hidden subscriptions or services that people might not even realize we're still paying for. 

By reviewing these diaries together, we can spot trends, cut out wasteful spending, and make smarter decisions about where to invest our resources." - Stephen Hudson, Managing Director of Printroom.

An easy-to-follow small business budget template

Business budget planning is critical to managing your small business finances effectively.

It helps you:

• Keep track of income,
• Control expenses,
• And plan for growth.

Below is a simple, easy-to-follow budget template designed to give you a clear picture of your financial health and ensure your business stays on track.

1. Revenue projections

Sales income: $___

Service income: $___

Other income (e.g., investments, grants): $___

Total revenue: $___

2. Fixed costs

Rent/mortgage: $___

Utilities (electricity, water, internet): $___

Employee salaries/wages: $___

Insurance: $___

Loan payments: $___

Subscriptions (software, tools): $___

Total fixed costs: $___

3. Variable costs

Raw materials/inventory: $___

Marketing/advertising: $___

Shipping/delivery: $___

Production costs: $___

Commissions/contract labor: $___

Total variable costs: $___

4. One-time expenses

Equipment purchases: $___

Business expansion: $___

Marketing campaigns: $___

Repairs/maintenance: $___

Total one-time expenses: $___

5. Profit margin goals

Revenue goal: $___

Target profit: $___

6. Savings and emergency Fund

Savings allocation: $___

Emergency fund: $___

7. Debt repayment

Loan repayment: $___

Credit card payments: $___

Total debt repayment: $___

8. Taxes

Business taxes: $___

Payroll taxes: $___

Sales taxes: $___

Total taxes: $___

Total revenue: $___

Total expenses (fixed + variable + one-time): $___

Profit/loss (revenue - expenses): $___

Protect your business with Trademarkia

In conclusion, protecting your business goes beyond financial management—it extends to safeguarding your intellectual property.

At Trademarkia, we understand the importance of securing your brand and assets, ensuring that your hard work and creativity are legally protected.

Whether you're just starting or managing a growing enterprise, our team is here to guide you through the:

• Trademark,
• Copyright,
• And patent processes with ease.

By partnering with Trademarkia, you can focus on running your business with the confidence that your intellectual property is secure, giving you the peace of mind to pursue growth and innovation.