Business Budget Definition and Example
Use this sample business budget to get you on track
A budget is an essential part of your business plan when starting a new business. Once your business is established, budgeting becomes a regular task that normally occurs on a quarterly and/or annual basis, where past budgets are reviewed and budget projections are made for the next three or even five quarters or years.
The basic process of planning a budget involves listing your business's fixed and variable costs on a monthly basis and then deciding on the allocation of funds to reflect goals.
Businesses often use special types of budgets to assess specific areas of operation. A cash flow budget, for example, projects your business's cash inflows and outflows over a certain period of time. Its main use is to predict your business's ability to take in more cash than it pays out.
Why Your Business Needs a Budget
Without a budget, you may not know how your business is performing. A budget provides an accurate picture of expenditures and revenues and should drive important business decisions such as whether to:
Most businesses have fixed costs that are independent of sales revenue, such as:
- Building or office eases or mortgage costs
- Loan payments (if using debt financing)
- Vehicle leases (or loan payments if the vehicle is purchased)
- Equipment (machinery, tools, computers, etc.)
- Payroll (if employees are on salary)
- Utilities such as landline phone and internet charges
Variable costs increase or decrease according to the level of business activity. Examples include:
- Contractors' wages or commissions (for salespeople)
- Utilities such as electricity, gas, or water that increase with activity
- Raw materials
- Shipping and delivery costs
- Advertising (can be fixed or variable)
- Maintenance and repair of equipment
If you're planning on starting a business, planning a budget plays an important role in determining your start-up and operating costs. The financial plan section of your business plan provides information on calculating your start-up and operating expenses.
Business Budget Template
A simple business budget template includes expenses common to most small businesses. You can use and modify a template as required to suit your own business, filling out your own information where applicable. Your completed budget might look something like this:
|1st Quarter Sales||$34,300.00||$35,000.00||-$700.00|
|2nd Quarter Sales||$35,250.00||$35,000.00||$250.00|
|3rd Quarter Sales||$31,300.00||$30,000.00||$1,300.00|
|4th Quarter Sales||$27,100.00||$25,000.00||-$900.00|
|Total Operating Income||$127,950.00||$125,000.00||$2,950.00|
|Total Non-Operating Income||$1,670.00||$1,100.00||$570.00|
|Salaries, Wages, and Benefits||$66,000.00||$60,000.00||$6,000.00|
|Shipping and Delivery||$850.00||$1,000.00||-$150.00|
|Maintenance and Repairs||$1,100.00||$1,500.00||-$400.00|
|Total Operating Expenses||$92,880.00||$86,800.00||$6,080.00|
|Total Non-Operating Expenses||$3,300.00||$4,000.00||-$700.00|
Many budgets also include actual figures going back several quarters or years as a comparison for what is being projected for the upcoming quarter or year. Most accounting software has options for budgeting/forecasting.
Making Budget Estimates
It is important to be realistic with your budget projections. If in doubt, be conservative and overestimate your expenses and underestimate your revenues. It is particularly difficult if you are starting a new business and have no previous year's budget figures to guide your estimates. In this case, it is typically much easier to estimate expenses than revenues.
As the budget year progresses the estimates should be updated monthly with actual figures, enabling you to check the accuracy of your forecasts. Note that there often are radical differences between actual and projected revenues and expenses due to unforeseen business circumstances and/or changing business and economic cycles, such as:
- Gaining or losing a major client
- Having to purchase or replace expensive equipment
- An increase in rent
- Hiring employees
- An increase in competition
- Changes in the tax code