What is a Business Budget?
A business budget is a simple plan that shows how much money your business expects to make and how much it plans to spend over a period of time, like monthly, quarterly, or yearly. It’s a guide to help you make better financial decisions.
With a good budget plan, you can manage your money wisely, know what to spend on, and see if your business is actually making a profit. It also helps you plan ahead, avoid spending too much, and stay focused on your business goals.
Your budget also gives you a clear picture of how healthy your business is financially. You can use it to set targets, like how much you want to earn, how much you can afford to spend, and how to control your cash flow, so you don’t run out of money when you need it.
Benefits of Creating a Budget for Your Small Business
Some small business owners already know how helpful a business budget can be, but for many new business owners or hustlers just starting out, it may feel like something only “big companies” need. The truth is, creating a budget is one of the best things you can do for your business, no matter how small it is. It’s like having a financial map that shows you where your money is going and where problems may be hiding.
Here are some key benefits of small business budgeting:
- When you have a clear budget plan, you’ll feel more in control of your business money and make decisions confidently, without guessing.
- Maybe you’re spending too much on restocking, or you often run out of cash before the end of the month. A budget helps you notice these issues early and fix them.
- With proper budget management, you can plan better and keep your business financially stable, even when things get tough.
- Budgets help you see what’s working and what’s not. That way, you can improve, grow your income, and avoid repeating mistakes.
Bottom line, having a detailed budget plan should not be seen as extra work; it’s one of the key needs for running a successful business.
Essential components of a good small business budget
Creating a budget means putting together a clear plan for how money enters and leaves your business. It helps you track how much you're making, plan for regular and unexpected expenses, and see if you're spending within your means. This way, you can tell if your business is making a profit or running at a loss.
To create a strong budget plan, you need to include all the main expense of your business. These include things like:
- Your total income: How much you make from sales or services every month.
- Average order size: The usual amount customers spend per order.
- Number of sales per month: How many products or services do you sell in a month?
- Billable hours: If you charge per hour, how many hours do you work and get paid for?
- Salaries or wages: What you pay your workers or yourself every month.
- Material or stock expenses: Money you spent on buying raw materials or goods you sell.
- Business bills: Things like rent, electricity, water, data (for internet connection), etc.
When creating a budget, it’s important to track all these numbers carefully. Don’t guess or assume; try to write everything down as it happens. Even a small mistake in your numbers can confuse you or make you take wrong monetary decisions.
That’s why using budgeting tools or expense tracking software helps you save time, reduces errors, and makes it easier to track your income and expenses. The more accurate your numbers are, the better your business decisions will be.
Always remember that what you get out of your business depends on what you put in. So, take time to build your budget plan with real and correct figures to get the best results.
How Does a Business Budget Work?
A business budget is a tool that helps you plan for the future by looking at your past income and spending. You look at how your business has been doing in recent months, your income, your expenses, and your profit, and use that information to make better decisions moving forward.
For example, if sales have been slow, your budget can help you reduce spending and focus only on what’s important. But if business is doing well and new customers are showing up, your budget can help you plan to buy more stock, hire more hands, or even expand your business.
Creating a business budget from scratch might feel like hard work at first, but it becomes easier when you use the right tools. A good place to start is your accounting software, since it already records your income and expenses and can generate simple reports to show how your business is performing.
Take Esemie, for instance, you can enter your expected income and expenses, and it will help calculate your profit, losses, and even your cash flow. You can also compare your actual results with what you planned, so you know if you’re on track or if you need to adjust.
How to Create a Business Budget in 6 Simple Steps
If you’ve been running your business for a while, you can use your past sales, expenses, and profits to plan your budget. But if you’re just starting out, you can do some research, ask around, check online, or speak with experts in your industry to understand common business costs and how much people are earning.
Here are six easy steps to help you build a solid business budget:
Calculate Total Income
The first step in creating a business budget is to check how much money your business brings in every month. This is called your total income or revenue; it’s the money you make from sales before removing any expenses. Start by listing all the different ways your business makes money. This could be from product sales, services you offer, small jobs, contracts, or any other regular income.
If you’ve been in business for a while, look at how much you’ve made over the past 6 to 12 months. Try to notice any patterns, maybe sales drop during the rainy season or go up during festive periods like December. These patterns will help you know what to expect and how to plan for slow or busy seasons.
Once you’ve done that, use the numbers to estimate how much income you expect to make in the coming months. Don’t forget that at this stage, you’re only looking at the money coming in, not your profit yet. Just focus on how much your business is making before removing your costs.
Subtract Your Monthly Expenses
Once you know how much money is coming into your business, the next step is to subtract your regular monthly expenses. These are the fixed costs that don’t change much, no matter how well or how badly your business is doing. Whether you make a lot of sales or just a few, you still have to pay them.
Examples of fixed costs include rent for your shop or office, loan repayments, staff salaries or wages, internet subscription, business insurance (if you have one), and even things like generator maintenance if you run on fuel often. These are bills that show up every month or at regular intervals.
Look at your records to see how much these expenses usually cost, add them all together, then subtract the total from your monthly income. This will show you how much is left after taking care of the basics.
Subtract Variable Expenses
After removing your fixed costs, the next step is to look at your variable expenses, which are the costs that go up or down depending on how well your business is doing. For example, if you get plenty of customers in a month, you may spend more on raw materials, fuel, delivery, or even pay extra hands to help. But in slow months, these costs are usually lower.
Common variable expenses include things like payment for casual or hourly workers, your own salary (if you only pay yourself when there's profit), the cost of buying raw materials or stock, and utility bills like electricity or water that change depending on how busy your business is.
Look at how these costs have changed over time, then estimate what they might be in the coming months. Add them up and subtract the total from your income. When things are tight, you can reduce variable expenses to save money. But when business is booming, you can spend more on them to help your business grow.
Set Up an Emergency Fund
As you plan your budget, don’t forget to keep some money aside for emergencies. No matter how careful you are, unexpected things can happen. A machine might suddenly stop working, goods can get damaged, or you may need to fix something quickly. If you don’t have money saved for these kinds of situations, it can seriously affect your business.
Instead of using all your extra income to buy more stock or expand immediately, try to save a small amount every month in a separate place. This is your “just in case” fund. It gives you peace of mind and helps you stay prepared when problems come up unexpectedly.
Get a Profit and Loss Statement
Now that you’ve listed all your income and removed both fixed and variable expenses, it’s time to check if your business is making a profit or running at a loss. You can do this by simply subtracting your total expenses from your total income.
If the number you get is positive, it means you’ve made a profit. But if it’s negative, then you’ve made a loss, and that’s not the end of the world. Many small businesses don’t make a profit every month, especially when they are just starting out or trying to grow.
The goal is to see the full picture of how your business is performing. If you’re using accounting software, it can create a profit and loss statement for you automatically. This statement shows your income, expenses, and what’s left, all in one place. Try to compare this with past months to know if your business is improving or needs adjustments.
Draft Your Business Budget
After reviewing your profit and loss (P&L) statement and seeing where your money goes, the next step is to create your business budget. This is where you write down how much you plan to spend on each area of your business, like rent, stock, salaries, fuel, etc, and how much you expect to earn over a period (monthly, quarterly, or yearly).
Most small businesses start with a 3-month (quarterly) budget. Your budget should set clear spending limits on each expense, so you don’t overspend or run into cash problems. It also helps you know if you’re operating within your means or spending more than you should.
If you're using accounting software like Esemie, it’s much easier to track your income and expenses, reduce waste, and get a clearer picture of your business finances.
Best practices for small business budgeting
Creating a good business budget is more than just writing down numbers. It helps you manage your daily expenses, plan for the future, and make smarter decisions. But to make your budget truly work for you, here are some helpful tips you should keep in mind:
- First, understand that one small change in your business can affect many things. For example, hiring a new staff member doesn’t just mean paying their salary. You may also spend more on fuel, internet, lunch, or other things related to their work. So whenever you make changes in your business, take time to update your budget accordingly.
- Make sure you include all your expense types, the regular ones (like rent and salaries), the changing ones (like fuel and raw materials), and one-time costs (like buying a new fridge or fixing equipment). Planning for all of these will help you avoid surprises.
- Treat your budget like a living document, not something you write once and forget. Your income and expenses can change, so you need to review your budget from time to time. Check your financial records often and adjust your budget when needed.
- Set financial goals for your business, but try not to over expect. For example, if you normally make ₦500,000 monthly, don’t plan as if you’ll make ₦1 million without clear proof. It’s better to plan with what you’re sure of and be surprised with extra income than to be disappointed.
- Lastly, always look for ways to save money or grow your income. Check your business records to see what’s working and what’s not. Maybe you're spending too much on delivery, or you could sell more if you added a new product. Finding areas to improve can help your business grow stronger and last longer.
Small Business Budgeting with Eemie Accounting Software
Creating a business budget might feel like a lot of work, but it’s one of the best ways to keep your business steady and stay ahead of the competition.
Some business owners use Excel to create their budget, which is okay. But using accounting software like Esemie makes the whole process easier and faster. With Esemie, you can track your income and expenses, monitor your cash flow, and generate helpful reports that show if you’re making a profit or running at a loss.
These tools give you a clearer picture of your finances so that you can make smarter decisions. Instead of guessing, you’ll know exactly where your money is going and where to cut costs or grow.
If you want to manage your finances better and create a strong business budget without stress, Esemie is a great place to start.