6 Steps to Create a Small Business Budget + Free Template

You use a GPS to guide you towards your destination. You use an instruction manual to help put together IKEA furniture (good luck if you don’t). Well, as a small business owner you’ll most certainly find it helpful to use a budget to do the following:

  • identify which expenses you can reduce

  • understand when you’ll be able to afford to hire

  • figure out how much you can pay yourself

  • know how much sales you’ll need to cover costs

  • understand your cash flow each month to avoid running out of money

Creating a budget may seem intimidating, but by following these steps you’ll quickly be on your way to running a small business with a much more predictable financial future.


Creating a budget for a new vs. established small business

When building out your budget, while the process is similar, it isn’t the same for a new business vs. one that has been around for some time.


Budgets for new businesses

If your business is new, you won’t have historical income and expense numbers (i.e. a profit and loss statement). You might be wondering how you’ll be able to create a budget. There are better ways than simply guessing what you’ll likely bring in and what you should expect to spend.


Talk to competitors

People are more willing to help than you might expect! Join LinkedIn or other networking groups in your field. Ask similar small businesses questions around costs and revenue related to when they were starting out. Keep in mind that factors like different local markets and the fluctuating economy (what someone experienced 5 years ago may not be the same for you today) mean you should use their responses as guidance and not hard and fast numbers to enter into your budget. You can also contact similar businesses that are for sale and inquire about their income and expenses.


Budgets for existing businesses

If your business is already established, you’re ahead of the game. You have historical information (mainly your P&L statement) that will help provide you with a lot of what you need to create your budget.


Types of Budgets

There are different ways to set up your budget. One way is to group your expenses by categories. An example of this would be putting Payroll Processing Fees, Payroll Taxes, W2 Wages and Benefits under a category called Payroll Expense. This gives you an idea of how much you are spending across a broader category.


Another way of grouping is to break out fixed vs. variable expenses. As explained by Inc., “Fixed expenses or costs are those that do not fluctuate with changes in production level or sales volume..” and “Variable costs are those that respond directly and proportionately to changes in activity level or volume..”


While both have their advantages, we like the fixed vs. variable method. It helps us easily identify the expenses that we’re able to potentially lower on an ad hoc basis (e.g. meals) vs. those we can try and lower on a long term basis via contract negotiations (e.g. rent).


Don’t Beat Yourself Up Trying to Get Exact Numbers

Budgets are tools to guide you as you make decisions about your business in the future. As there are many variables that will impact your actuals a year after your budget has been set, you don’t need to try and get your budget right down to the exact dollar. Your best bet is to estimate to some degree and round up with expenses. This way you are more likely prepared than surprised if things don’t go as well as planned.


A screenshot of our downloadable budget template

1. Download our Simple yet Effective Budget Template

As you enter each of the amounts below, enter them in the month they fall (e.g. annual insurance payment in June), don’t just break them up monthly unless it is a monthly charge (e.g. rent). This will help ensure you know how much you need to have in the bank each month for your upcoming expenses. Follow the instructions included with the template for more guidance.


Our free budget template


2. List Out Income Categories

Make sure to capture all sources of business income including but not limited to recurring and one-time engagements, product sales, interest on savings, investment income, etc.


3. Look Up Fixed Expenses

This is the easy one. You have contracts related to rent/mortgage, utilities, accounting, insurance, legal services, etc. Look at these contracts and list them all out. This also includes any employees you pay a fixed salary.


4. Identify Variable Expenses

These include marketing, contractor/hourly employee wages, travel, meals, and any other costs you know you will incur but have amounts that change based on sales, production, etc. If you have an existing business, make your estimates off data you already have, making any adjustments you believe makes sense. If you are a new business, follow the tips mentioned above.


5. Anticipate One-Off Expenses

There will most certainly be one-off costs you know you have (e.g. client gifts, office supplies) and ones you didn’t anticipate (e.g. new laptop, office maintenance, additional new software fee). Make sure you budget for the expected and unexpected here to ensure you have funds put aside for when you need them.


6. Ongoing Budget Maintenance

Creating your budget is only the start. Each month, once you have the actuals (the numbers tracked for each category), enter them and you’ll automatically see the variance from what you budgeted. You’ll then see how your business is performing against expectations and can take action month-to-month as needed.


QuickBooks Tip

If you have QuickBooks Online Plus, once you've filled out our template you can easily plug your numbers in and get additional reporting. Here's more information on how to manage budgets in QuickBooks Online Plus.


You don’t have to go at it alone. If you’re looking to create your budget specifically tailored to your industry and custom business needs, we can help - reach out today. And don’t forget to download our small business budget template to get started!


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