How to Create a Business Budget in 5 Steps

Creating a business budget (or a personal one!) is the first step towards good financial management. A detailed, well-thought-out budget can help you stay organized and give you more control over your company’s finances. It will make you more aware of where your company’s money is going and prevent you from spending more than you earn.
But how do you create a business budget?

In this article, the experts at T2inc.ca present the 5 crucial steps for developing a sound business budget.

1. Estimate your sales and revenue

First of all, you’ll need to estimate your sales and revenue for the determined budget period, which can be monthly or annual. That way, you can determine how much you can afford to spend.

If your company has already been in business for a few years, this step is easier because you can rely on your numbers from previous years and simply keep track of your budget. 

If you’re starting a new business, estimating the numbers accurately will be more of a challenge. You’ll need to conduct market research to try to determine what your sales might be in your first year. You can then create a budget forecast and adjust it later on.

You can create an Excel spreadsheet for managing your budget and add new tabs over the years. 

2. Determine your fixed costs

Fixed costs are expenses that never change or vary. These are the items in your business budget that won’t fluctuate from month to month. They may include your rent, payroll, internet plan, etc. These expenses are usually necessary for daily operations and should always be included in your budget.

3. Determine your variable costs

Unlike fixed costs, variable costs are expenses that fluctuate from month to month. Raw materials, advertising, packaging and transportation are just a few examples of variable expenses that should be included in your monthly or annual business budget.

4. Keep liquidity available for occasional expenses

As their name suggests, occasional expenses are those that occur only rarely. An example of an occasional expense would be purchasing our T2 corporate tax software or replacing broken equipment.

Keeping funds aside for these expenses will help you avoid unpleasant surprises and prevent you from having to make budget cuts in other departments in the event of unexpected circumstances.

5. Calculate and adjust your business budget

Once you’ve calculated all of the amounts listed above, add them up to obtain your total projected expenses for the period. Then, you’ll be able to compare your expenses and expected revenue to determine the profit margin for your company.

If you notice any anomalies or determine that your profit margin is lower than you expected, you can adjust your plan accordingly to better align your budget with your business goals.

Remember that it’s always a good idea to have extra funds in your budget to cover unexpected expenses.

Need more tips on corporate budgeting?

To create a basic business budget, simply estimate your revenue and compare it your total expenses for the same period. Equip yourself with good spreadsheet software (e.g. Excel) that will enable you to organize and centralize the data and generate a budget forecast for your company. This will give you a better overview and more control over the state of your company’s finances.

Do you need more advice on budget management for your SME? Feel free to contact us and make use of our taxation and accounting services. Our T2inc.ca experts will be able to offer you personalized advice that will help you take your business to the next level!