Building a budget for your small business

Trying to run a small business without a solid budget is a recipe for disaster. Surprisingly, many people try this. Some get lucky but many of these businesses start to flounder before too long and often fail. While many small business owners are not keen on accounting skills, it is essential that they understand the basics and have systems in place to manage their finances.
In the past, this was time-consuming and challenging. It would often require the services of an external accountant from day one. These services can be expensive and fail to solve the problem if there is poor communication. The business owner needs to be involved in the finances and aware of what is going on. Fortunately, modern software systems make this task much easier.

Why do you need a budget?

Whether you are a one-man business or a growing small business, a budget will help you manage your cash on hand as well as your business expenses. Many companies fail even though they are busy and have lots of orders. If you do not have the cash to pay suppliers, purchase stock, pay staff expenses, and handle day to day expenses, you could soon find yourself in trouble. This can be often be prevented with a tight budget. You can often use credit, but this becomes expensive and will only carry you for so long. You need to know what you have, what is coming in and what you are spending. This will help you forecast and plan what you need to do in order to survive and grow. There is an old business saying that states “you can’t manage what you can’t measure”. A detailed budget will give you a framework to work with and guide your targets and decision making. It has to be realistic. The budget can help you decide on expenses, investment, and financing.

What should a budget include?

There are a few main points to include in your budgets:


• Profit & Loss report
The idea of this report is to give you your current financial position at a glance. It is your income less expenses and will show you instantly if you are losing or making money.
• Income report
This shows the money coming into your business.
• Expense report
This shows the money going out of the business on expenses such as rent, staff costs, marketing, and raw materials.
Depreciation, payroll, overheads, and repayments on debts all need to be included.

Building your budget

While this can seem like a daunting task, it is not difficult if you break it down and have a basic understanding of the various components.


Modern accounting software solutions have made the task much faster and easier. We will look at a few of the leading options further on. It is less complicated and difficult than most people imagine.
If you have done a budget previously it should be fairly straightforward to create a realistic and accurate budget for the new financial year. Building a brand new budget with no hard data to work from can be challenging.
Ensure you have realistic targets and expectations. Look at similar businesses in the industry and your market and try to make an educated guess as to their sales and revenue. Do not be too ambitious with revenue and profit margins.
You should have a fair idea of most of your expenses. Fixed costs are easy, but make sure to include all variable expenses as well as a budget for unforeseen costs.
Your budget may not be perfect the first time around, but it will at least give you some direction and something to measure against. As your business develops you can adjust and update the budget where and when necessary.

Software solutions for building a budget

Budgeting can be challenging and time-consuming, especially if you do not have a financial background. Fortunately, modern account and financial software solutions are powerful tools that make the job much simpler. There are a number of free tools if you have not invested in accounting software. While these tools can help you, they are generally relatively limited and you will still need to get financial software or outsource this function. Here are a few of the leading software solutions:

• FreshBooks
This is a popular solution for small business accounting and includes an invoicing function. It is great for scheduled or recurring invoices and it allows you to track the invoice. It will be an asset when building your budget. The software is affordable and user-friendly.
• Xero
Xero is a mobile-friendly solution that gives real-time data to help you manage the financial and inventory aspects of your business. It integrates with other software and can help with budgeting.
• Intuit QuickBooks Online
This is another powerful solution that integrates with other platforms and systems to deliver accurate and up-to-date information. It offers useful reports, and the features will be a great asset when building your budget.
• Sage 50cloud
Sage 50cloud will help you track and manage all aspects of your small business finances, including your budget. It is powerful and flexible enough to grow with you as your business expands.

Final thoughts

Good financial control is critical to the success of your small business, and it all starts with a budget. You do not have to be a financial expert to build a reasonable budget. Just understand the basic principles and make use of the tools available to you.

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