How to Create Your First Business Budget

Although creating business budgets for the first time can seem challenging, rest assured that it will soon seem like second nature to you. In the meantime, we hope the tips below will have you feeling confident in creating the first budget for your small business.

Decide Your Budget Goal

A budget goal is the amount of money you’re willing to spend just to launch your new small business. It’s important to write down an amount you feel comfortable with and that you can afford because your budget won’t make sense otherwise. Think of it as setting boundaries, the same way you might need to do in a business or personal relationship. While you’re undeniably anxious to start your business, you don’t want to wipe out your savings or take on more debt than you can repay to do so.

How Much Do You Expect to Make?

Adding income from all sources is one of the first steps in preparing budgets. You should have already completed a sales forecast to allow you to at least estimate how many sales your new company will make during the budgeting period. At this stage, you’re only adding revenue to your budget and not net profit that you will handle later. Be sure to create a separate revenue line for each unique product along with other sources of revenue like rents, royalties, investments, and interest.

Estimate and Categorize Your Initial Business Expenses

Since expenses are almost always higher than you might expect, have a brainstorming session and write down every possible expense that comes to mind. Your final list should include each of some of these types of business expenses:

  • Start-up costs: This is the money you spend just opening your door for the first time. Typical examples include business equipment, purchasing a storefront or other business property, obtaining permits, and registering your new business with the Secretary of State.
  • Fixed: The bills you pay every month or at least a few times a year would fall into the fixed expenses category. Payroll, rent, subscriptions, and utility costs are just some examples.
  • One-off: This usually covers large, one-time expenses like a real estate purchase. Because one-off costs can be unpredictable, it’s crucial to leave money in the budget to cover them.
  • Variable: This category covers expenses that change each month such as cost to obtain inventory, marketing costs, and office supplies.

Determine Your Business Profit

Calculating profit is as simple as deducting expenses from revenue. It’s possible that you will show a loss instead of a profit during the first few years after launching your business. This is normal. It takes time for a new company to start bringing in more than it spends.

Adjust Your Budget as Necessary

It won’t take long to discover that operating a business is expensive. So expensive, in fact, that you must cut items from your budget to make it possible to stay in business. This is also a good time to consider any additional revenue you might raise. For example, some investors may have already expressed interest in buying a share of your company. If you’re okay with that person or firm having some say in future operations, this might become a serious consideration.

Schedule a Consultation for More In-Depth Business Budgets Advice

We understand the above may barely scratch the surface of what you need to know about business budgets. For a more detailed explanation and for advice on preparing your own company’s budget, request a consultation from Business Partner Alliance today.