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4 Min. Read

How to Create a Business Budget?

A budget is a roadmap to your business the world’s oldest management tool. Every business needs to have a budget to set goals and evaluate the viability of their business plans. It is a critical to the financial health of a company, identifying new investment opportunities and measuring progress. There should not be a business that is operating without a business budget.

Here are five steps to create a business budget:

1. Add up Your Income Sources

Do you know where all your sources of income are coming from? The first element of a budget is figuring out how much money your company is bringing in on a monthly basis.

Start by looking at your active income including the money you earned from sales. Next, consider the portfolio income you have made from capital gains on stocks. Finally, add in the passive income you are making cashflow on things like rent and royalties.

Other examples of income sources include:

  • Hourly Earnings
  • Product Sales
  • Investment Income
  • Loans
  • Savings

2. Figured out Your Fixed Costs

Expenses that are the same price each month are considered fixed costs. Factoring these numbers is often the easiest part of creating a business budget. On your financial statements, it is easy to spot fixed costs as they are usually the same cost every month.

Examples of fixed costs include:

  • Rent/Mortgage
  • Utilities
  • Salaries
  • Internet
  • Government and bank fees
  • Cell phone
  • Website hosting
  • Accounting Services
  • Legal Services
  • Insurance

3. Include Variable Expenses

Expenses that don’t have a fixed price every month are called variable costs. Depending on the state of your business many of your variable costs will be scaled up or down. Profits per month are determined by the revenue you’re left with after paying all your costs. If your business is doing better than forecasted than you can use the extra funds to increase variable spending to help your business grow faster.

Here are some examples of variable expenses:

  • Raw Materials
  • Contractor Wages
  • Commissions
  • Advertising
  • Other Marketing Costs
  • Transportation
  • Travel & events
  • Printing Services

4. Forecast One-Time Spends

Creating a business budget allows you to factor in one-time purchases easily. Some expenses might come up unexpectedly, like replacing broken equipment, but other purchases can be budgeted for months in advance, like a business conference or retreat. Anticipating these costs can protect your business from financial burdens.

Examples of One-Times Spends include:

  • Computer
  • Furniture
  • Software
  • Office Supplies
  • Gifts
  • Retreats
  • Conferences

5. Put Everything Together

Gather the information from the first four steps to create your budget. Subtract your expenses and costs from your income to see how much money you have to work with. Use this amount to set financial goals and plan to spend on your next working period.

This article will also contain information on:

How Do I Make a Budget Spreadsheet?

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

How Do I Make a Budget Spreadsheet?

A basic business budget spreadsheet includes four basics columns of information – categories, budget amount, actual amount and the difference.

The categories will be broken down into two main categories – total income and total expenses. In your spreadsheet you can create subsections for more details on your total income and expenses. At the very bottom of the worksheet, you will see the bottom line which is the total expenses minus the total income and the sum of that equation.

Although there is software to make your budgeting easier, an excel spreadsheet is a great option to use when creating q budget worksheet. Excel can meet your accounting needs by a tool to track, post and record transactions and it is quite easy to navigate.

Here is an example of a basic business budget spreadsheet:

CategoryBudget AmountActual AmountDifference
Sales Revenue
Interest Income
Investment Income
Other Income
Accounting Services
Bank Service Charges
Credit Card Fees
Delivery Charges
Deposits for Utilities
Estimated Taxes
Health Insurance
Hiring Costs
Installation / Repair of Equipment
Interest on Debt
Inventory Purchases
Legal Expenses
Loan Payments
Office Supplies
Payroll Taxes
Professional Fees
Rent/Lease Payments
Retirement Contributions
Subscriptions and Dues
Utilities and Telephone
Vehicle Expenses