The small-scale approach to budgeting

A budget is a tool every business, regardless of size, should use because it serves as a financial map for managing and growing your business. This recent post explains why budgets are important (” Does my business need a budget? “).  With many competing demands on your time, creating a budget is likely not high on the priority list.  This guide will provide you with the steps to quickly and easily create a useful budget for your small business.

  1. use your year-to-date income statement as a starting point.
  2. create a document or use software and list your revenue and expense categories – use the same categories that are on your income statement.  Consistency will make it easy to compare actual to budgeted results during the year.
  3. add amounts for the expenses you can reasonably estimate for the year.  Examples of these are rent, utilities, bank fees, dues & memberships, insurance, loan interest, phone, internet.
  4. for expenses such as advertising, supplies, professional development, wages/benefits, contractors, meals & entertainment, etc. look at what you spent so far in the current year, think about what goals and initiatives you have planned for the upcoming year (your business plan is a good reference for this) and adjust your expenses accordingly to ensure they reflect your intentions.
  5. fill in your revenue.  Using an approach similar to point #4, look at what you’ve earned so far and modify based on your goals for next year.
  6. review your budgeted income statement.  Ensure you included everything you spend money on to operate your business.  This means, parking, 407 fees.  Although you might think these are too small to include for purposes of budgeting, it’s important to create a realistic financial picture for the upcoming year.  If that means adding in a slight buffer for your expenses, then do it. 
  7. assess whether your budget looks reasonable.  Are your expenses adequate to support your revenue expectations?  When compared to your year-to-date results and business plan, does it make sense?

That’s it!  During the year, on a quarterly basis, compare your actual results to budget and investigate/understand any significant variances. 





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