7 Tips And Tricks To Build A Perfect Small Business Budget

1. Do your research

Researching industry standards and prices is key to creating the perfect budget. If this is your first budget, it’ll involve a lot of estimates, guesses, and ballparking. But doing your homework prepares you for the rent and marketing costs you need to plan for. Industry standards also give you insights about costs and revenue that serve as benchmarks.

If you’ve been in business for at least a year, look at last year’s expenses and income. Pinpoint areas where you’re spending too much money. Use this time to seek competitive pricing on services or materials and negotiate with your current suppliers.

2. Create a spreadsheet

If this is your first business, you might wonder what goes into creating a budget. To get a clear picture, put all of your expenses and income into a spreadsheet. When it comes to expenses, it’s easier to categorize them under fixed and variable costs.

• Fixed costs stay the same no matter how much you sell, such as rent, utilities, and insurance.
• Variable costs change with production, such as labor, commissions, and raw materials.

Income is all the money coming into the business from sales or services you provide. But more on that later.

3. Track all of your expenses

Keeping every receipt and invoice in one place is crucial to an accurate budget. It’s no coincidence that the word business is very similar to the word busyness. Running a business gets hectic, and lost paperwork can mean an inaccurate budget or fines at audit time. Different online tools can help you organize invoices and receipts. Accounting software like QuickBooks Online lets you upload invoices, and even pay them, all online. It also syncs your accounts payable and receivable (AP and AR) with Melio. That way, everything is organized in one place and you don’t get dinged for late payments.

You can then download a spreadsheet with all of your expenses and forward it to your bookkeeper. If you’re doing your own bookkeeping, simply copy-paste the expenses into the spreadsheet you’ve created.

Within a few months, you’ll see certain patterns, what you’re spending too much on, and what you can cut back. This can save you a lot of money in the long run.

4. Track your incoming payments

The fun part of running a business is seeing sales come in from all of your happy customers. Make sure all invoices for your services and goods get paid on time. If you use a point-of-sale terminal, the software usually tells you how many sales you made daily, weekly, and monthly. Track the sales through incoming deposits to your bank account. If there are any late payments, send your customers a friendly reminder. When you have all your income laid out, add it to your spreadsheet.

5. Use software and online tools

The right tools save hours of back-office work and give you a real-time view of cash flow. With online tools like Google Sheets, you can build and edit a budget live. Melio, an online accounts payable software, then helps you:

• Upload receipts and pay vendors
• Send invoices and collect payments
• Sync everything with your accounting software

Tools like these give you a realistic view of your cash flow and the insight to adjust your budget.

6. Leave some wiggle room

When you’re a business owner, the unexpected can and will happen. It might be an expensive tool breaking, increased rent, inflation, or even a pandemic. A reserve fund protects you when the unexpected hits. Think a broken tool, a rent increase, or a slow month. Aim to set aside enough to cover a few months of fixed costs.

Putting aside a rainy day fund is never a bad idea. It might be challenging if your business is new and limited on funds. If that’s the case, budget conservatively. Expect costs to be high and revenue to be low. That way you’ll have extra cash and be ready for anything that comes your way.

7. Cut costs

Trying to grow and need capital for the next move? Consolidating expenses is a good way to cut costs. All those business lunches can add up and are easy to avoid if you’re trying to save.

Another way to cut costs is by contacting your current suppliers and renegotiating prices. Say you own a cafe and spend thousands of dollars a month on takeaway cups or coffee beans. It’s worth asking for a discount. Even the slightest discount on goods can add up to a lot of savings over time. Plus, it never hurts to ask. If they don’t agree, it might be time to look at alternative suppliers.

How do you create a budget for a small business?

Start by listing your income, then your fixed and variable costs. Track spending over time, set aside a buffer, and review the budget each month.

What is the 50/30/20 rule for budgeting?

It splits money into three buckets: half for needs, a third for wants, and the rest for savings or debt.

What is the 70-10-10-10 budget rule?

It divides income into four parts: most for daily costs, plus smaller equal shares for savings, investing, and debt.