How to Budget Money for a Business

Getting Started with Budgeting for Your Business

Many entrepreneurs are great at turning ideas into products or services that people need.

But one common mistake is not getting help with financial matters. 

If budgeting isn’t your strength, it’s important to find someone who can help you. This will help you avoid cash flow issues that can hurt your business. A solid budget is key to keeping everything in order.

So today we’ll cover how to budget money for a business, so you can stay on track with your financial and business goals. 

Written By Tiffany Woodfield, Financial Coach, TEP®, CRPC®, CIM®

How do you create a budget for a business?

Budgeting for a business can be done in many ways so choose a method that fits your business best.

Some examples of ways to create a budget are:

• Envelope Budgeting
• Zero-based budgeting
• Incremental budgeting

Zero-Based Budgeting

You would typically use zero-based budgeting (ZZB) when you’re starting a new project or venture and it is very useful where resources are limited, because it forces you to justify every expense. 

ZZB is a financial planning method where every dollar of income is assigned a specific job, ensuring that income minus expenses equals zero. Unlike traditional budgeting, which builds upon previous budgets, ZBB requires you to justify every expense for each new period, starting from a “zero base.”

Incremental Budgeting

This is a method where the previous year’s budget is used as a base.

Adjustments are made for the new budget period based on expected changes in revenue or expenses. It is often used by established businesses that have stable operations and want to keep budgeting simple.

Envelope Budgeting

This involves dividing cash into different envelopes designated for specific expenses (like payroll, marketing, and supplies).

It makes it easy to track expenses and stay within budget. This method is effective for businesses that prefer a visual system for managing their finances. However, this method will only work for very small businesses. 

Quick Video: Zero-Based Budgeting Basics

Zero-based budgeting can be a smart way to ensure you’re saving, investing, and putting money towards credit card or other debts as well as enjoying your life!

Budgeting Q & A

What expenses should I include in my business budget?

Some of the costs to plan to include in your business budget are:

• Rent or building purchase costs
• Employee expenses
• Advertising
• Professional fees
• Insurance
• Utilities
• Administrative costs
• Vehicle expenses
• Maintenance
• Taxes
• Shipping and production costs
• Travel expenses
• Inventory costs if applicable

How can I forecast my business income and expenses?

Here are some simple steps to help you manage your small business finances:

1. Review your income from the past few years to spot trends. This will help you estimate future sales while considering factors like seasonality, market conditions, customer demand, and planned marketing efforts.

2. Analyze historical data to project future fixed, variable, and one-time expenses.

3. Regularly compare your forecasts with actual performance and update your projections to reflect any changes in the market or your business operations.

How often should I review my business budget?

You should review your business budget at least once a month to check if you are making more or less money than expected.

Always ensure that expenses are staying on track. This regular review allows you to adjust quickly, if necessary, and make informed decisions.

What tools can I use to help manage my business budget effectively?

To manage your business budget effectively, you can use tools like QuickBooks, FreshBooks, and Jedox.

QuickBooks helps you keep track of your income and expenses, making it easy to see how your business is performing. FreshBooks is great for invoicing clients and tracking payments, which helps you understand how much money is coming in. Jedox is a planning tool that assists you in creating budgets and forecasts. 

These tools are easy to use and can make managing your business finances simpler and more organized!

What is the most important budgeting rule for small business owners and solopreneurs?

The most important budgeting rule for small business owners is to keep a close eye on your cash flow.

This means you should include a detailed cash flow forecast along with your projected income and expenses for the year. It’s essential to update this forecast regularly based on actual results.

Cash flow provides a snapshot of your business’s liquidity and helps identify potential leaks, such as inefficient invoicing and a weak accounts receivable process.

Who should I work with to create a budget for my business?

To create a budget for your business, I recommend working with a Certified Public Accountant (CPA) and a financial advisor who specializes in helping small businesses. They can help you tailor your budget to meet your specific needs.

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