2021-02-05 12:21:12 Funding and Financing English Should your business use a monthly budget, what types of budget are there, and how much should my business budget for? https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2021/02/planning-budget-photo-qbo-ca-desktop.jpeg https://quickbooks.intuit.com/ca/resources/funding-financing/how-to-plan-a-budget-for-your-small-business/ How to Plan a Budget for Your Small Business

How to Plan a Budget for Your Small Business

6 min read

As a small business owner, you generally must take on the budget planner role of your company, as you manage the finances of your operations. If you’re looking for budget planning help for small businesses, then you have come to the right place, as we discuss various aspects of the budgeting process below.

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Types of Budgets

The first question you will need to ask yourself, is what is the budget for? The type of document you will create depends on the purpose of your financial planning in the first place. Are you just looking at your income or expenses, or did you want a full overview of your business’s finances? Knowing what type of financial planning you will need to do, can help you prepare the appropriate small business budgets for your needs.

Four main types of budgets cover various aspects of a business, including,

  • Master Budget: A master budget is made up of smaller budgets within each department of a business, making up the operating budget, the capital expenditure budget, and the cash flow budget. The master budget is an essential business tool that owners and managers will use to obtain a complete overview of the company’s finances which can help them improve profitability.
  • Static Budget: Like the name suggests, a status budget is a budget with figures that do not change. The budget’s financial information is static, even when there are significant changes to the predicted volume numbers. In contrast, a flexible budget is an adjustable document that allows for changes after the planning process.
  • Operating Budget: This document contains the expenses and revenue generated from the normal operations of a business. As the name implies, this budget focuses on the operating costs and income of your business’s day-to-day responsibilities, including fixed costs and variable costs. This document should include sales numbers, manufacturing costs including material and labour expenses, and general administrative expenses.
  • Cash Flow Budget: This budget focuses on the money coming into and out of the business. The cash-flow budget projects the incoming cash from revenue and outgoing cash used to pay for expenses within a specific time frame or period. This budget will tell you if your business has sufficient enough cash to operate as usual.

How Long Should I Budget For?

Budget planning will typically plan ahead for a specific amount of time. When creating your business budget, you should ask yourself how long you are looking to plan for. Is it for the foreseeable future, or are you just looking to budget for one tough month in particular?

  • Weekly budget
  • Monthly budget
  • Yearly budget

Typically monthly budgets are the most useful as they offer a snapshot by month that is easier to follow and adhere to versus 12 months. A weekly budget might not be as useful in displaying the financial trends of your spending compared to longer time frames.

However, yearly budgets provide excellent insight and a comprehensive overview of the financial year ahead of you. That being said, you can also make a financial document that breaks down costs on a weekly, monthly, and yearly basis to cover all time frames in one document.

One thing to remember about the budget process- it should never end.

Monitoring your business’s finances is an ongoing process that should continue for as long as the business is running. Budget planning can cover a specific time period, but once that period is over, it is time to create a new plan for the next period. As the budget planner, you should make it a habit to update your budgets every few months to ensure you are adhering to your financial constraints.

How Much Should My Business Budget Be?

One of the most important parts of financial planning is the actual information recorded within the document. No two business or personal budgets will look the same, as every situation is different. Therefore, if you are wondering how much your business budget should be, you will first need to look at your previous financial statements to extrapolate this information.

Gather your business’s balance sheet, income statement, and cash flow statement and projections for the previous period to you. Consider your average income and revenue for a given month, alongside your operating expenses and other costs. Now use these numbers to fill in your document to create as accurate a portrayal of your current financial standing as you can.

Your budget will need to work within the confines of your finances. Therefore, business budgets should only contain numbers and figures that are relevant to your operations. You won’t want to plan for the income you want to bring it. Instead, plan for the income you knew you brought in last period, and plan for the expenses you know will need to be covered- whether that’s hundreds of dollars, thousands of dollars, or hundreds of thousands of dollars.

Budgeting Tips

As the primary budget planner of your small business, we have put together a list of some financial planning tips that can help you with the process. As budget planning helps companies keep track of their finances, and stay accountable for their spending habits and revenue generation, this tool can be used in a number of ways to help you improve your business.

Click through for further budgeting pointers for your small business.

Consider your industry when planning finances

The industry that your small business operates within, will play a part in your financial planning process. Your operation costs will differ from other businesses, as you factor in applicable variable expenses, fixed costs, production costs, profit margin, income sources, and the business model you are using.

Business budgets are also a great way to compare your finances against your company’s industry averages. These market comparisons can help you determine if your business is outperforming your competitors or underperforming within the industry. As the financial records of businesses must be published online, you can access your competitor’s information, just as they can access yours.

Plan for the unexpected

Every financial plan needs a little wiggle room. An emergency fund should always be included in your business budgeting, kept in reserve in case of an unexpected expense, or drop in revenue for a period.

Planning for the unexpected is a vital part of the budget planning process and should always be included in your business budgeting action plan. If you fall into an unexpected financial pitfall, your budgeted rainy day funds will provide you with the ability to climb out of that hole.

Consider these ways to create a cushion in your budget as the budget planner.

Use accounting software with budgeting tools

For comprehensive budget planning help, use accounting and bookkeeping software alongside your newly created financial plan to help you stay accountable to these projected figures. Improve profits and team morale with your planning and make a difference in your shipping costs, variable expenses, and other fixed costs when you plan ahead.

Accounting software like QuickBooks Online can manage your bills and track expenses to help ensure your business success in budget planning. QuickBooks records and stores all essential financial information so you can always reference the software to help you create a new financial plan for long term success.

Connect to hundreds of budgeting apps to take advantage of software that works for you.

 

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Next: How to Create a Small Business Budget>>

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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