Budgeting is not the most exciting part of running a business, but you cannot afford to ignore it or be nonchalant about it. When running a small business, it’s easy to get lost and confused about what’s happening to your finances. One minute, you’re smiling; the next, you are asking questions like, where did the money go?

Being left in the dark about the state of your finances strips you of the power and control you need to grow your business. As a small business owner, this will on lazy stagnate and eventually run down your business. Budgeting accurately is your lifeline.

A good budget gives you a clear understanding of your business’s financial situation and how to improve it. It gives you control over your finances, helps you manage cash flow, and ensures your money is working for you.

Creating a good budget is not as easy as putting a few figures on paper or a spreadsheet. You have to be intentional. To get started, below is a simple, step-by-step process to create an accurate budget for small businesses.

Why Small Businesses Need a Budget

Let’s say you run a small laundry business, and you find out that a few of your machines have broken down unexpectedly. Without a budget, paying for the repairs can put a strain on your cash flow. This will end up affecting other parts of your business in need of cash, like your staff monthly salaries, electricity, water, etc.

However, a good budget keeps you a step ahead, as you’ve already set aside some money for emergencies, so fixing the broken machines can no longer interrupt your business operations.

For many small businesses, unpredictable expenses and revenue fluctuations are common challenges. Budgeting prepares you ahead of time. It helps you allocate resources correctly, plan for unexpected expenses and make smarter investments that can push your business forward.

Without a clear budget, it’s easy to overspend, miss opportunities, or run into cash flow problems that can derail your business.

Step-by-Step Procedure to Create an Accurate Budget

Step 1: Review Your Finances

Begin by taking a good, honest look at your numbers. Sit and carefully dig into your past financial records, including income, expenses, and profits from the last 6 to 12 months. This data will give you a clear picture of your financial habits and show you areas where you should be spending more or less. Also, look for trends and patterns in your cash flow. You can also check “how to optimally allocate financial resources.”

Are there seasonal peaks or dips in revenue? Do certain expenses spike unexpectedly? Gather as much information as possible. It will help you make informed predictions about your business and build a budget that fully captures your financial strength.

Step 2: Set Clear Goals

You may be planning to expand your services by offering delivery options. That’s going to require a budget for hiring delivery staff or partnering with a courier service. But what if you also want to revamp your website?

Without clear goals, you fly blind. You can easily overspend in one area and neglect another; meanwhile, you need both. Map out all your goals. Short-term goals, like increasing sales this quarter, and long-term goals, like opening a second location. This way, your budget becomes a roadmap to achieving them all.

Step 3: Track Your Spending

Break down your expenses. Start by listing your fixed costs, like rent, salaries, and insurance. They are consistent and easier to plan for. Next, look into your variable expenses, like advertising or utilities and decide what is essential versus nice-to-have. This shows you where you need to cut back and also ensures your core operations are secure, even during tight financial periods.

Step 4: Project Your Revenue

Be realistic with your revenue. Revenue flow is not the same throughout the year; sometimes, business is booming, and other times, it is slow. Analyze your past income trends, preferably over the last year or more. Also, consider factors like industry trends, seasonal demand, or economic changes that may impact your sales.

When projecting revenue, it’s better to stay conservative. Overestimating your income can cause severe financial strain if revenue falls short. Write down realistic figures and also factor in potential fluctuations. This is why it’s important to have a solid knowledge of forecasting to be able to project for the future in a near-accurate version. This way, you’ll create a budget that’s both practical and flexible, ensuring your business is prepared for any surprises.

Step 5: Prepare for Surprises

Expect the unexpected. Because no matter how carefully you plan, unexpected expenses will always sneak up on you. As you prepare your budget, include an emergency fund or a contingency budget. Conduct scenario planning, think of possible disruptions that may happen, and develop a mitigation plan against them. It will keep you prepared for any surprises.

Unexpected costs range from equipment repairs to sudden increases in supply prices or legal fees. Put aside a small percentage of your revenue for these unforeseen expenses. This will save you from scrambling for funds when the unexpected comes knocking.

Step 6: Tweak as You Go

Keep your budget alive. As your business experiences change, so should your budget. Schedule time each month to review your financial performance and compare it against your budget. This will help you identify what needs to be adjusted, such as unexpected cost increases or underperforming revenue streams.

Regularly updating your budget ensures you stay focused on reaching your goals while keeping your finances on track.

Tools and Resources to Simplify Budgeting

Building and managing your small business budget is much easier with the right tools. Here are some options to consider:

1. Accounting Software: QuickBooks, Wave, FreshBooks, and Xero come with powerful features for tracking income, expenses, and cash flow, with real-time reporting to always keep you informed.
2. Budgeting Apps: Tools like YNAB (You Need a Budget) or PocketSmith can help you create detailed budgets and track your financial goals.
3. Spreadsheets: Google Sheets and Excel provide customizable templates for budget planning.
4. Expense Trackers: Apps like Expensify or Zoho Expense simplify recording and categorizing business expenses.
5. Cash Flow Forecasting Tools: Float or PlanGuru offer advanced forecasting that can help predict future financial trends and plans.
6. Templates and Resources: Websites like SCORE and Microsoft Office offer free budgeting templates that are tailored to small businesses.

Building a good budget can feel overwhelming, even for a small business. Seeing as you cannot skip it, take out enough time, follow the steps above and create an accurate budget for your business. You can also check “signs that your budget is inefficient and how to fix it.”

Final Words

Budgeting is the key to unlocking your small business’s financial potential. Need expert guidance to create a budget tailored to your goals? Contact Mac Adebowale Professional Services for personalized support and actionable insights. Email us at emails@macadebowale.com or macadebowaleadvisory@gmail.com to get started. Your journey to financial clarity and business growth begins here!