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How to Create a Basic Business Budget

8 Min Read | Aug 28, 2024

You’d never intentionally set your business up to fail, right? But if you don’t know your numbers and how to make a business budget, that’s exactly what you’re doing. Money problems and bad accounting are two reasons why many small businesses don’t make it past their first five years. 1

Talking about budgets can feel overwhelming. We get it. For a lot of business leaders, it’s a lot more comfortable dreaming up big ideas and getting stuff done than digging into numbers. But you can’t set yourself up for steady growth until you have a handle on the money flowing in and out of your company. You also can’t enjoy financial peace in your business.

Not a numbers person? That’s okay. Follow the simple steps below to learn how to create a budget for a business and manage your finances with confidence. We’ll even give you a link to an easy-to-use small-business budget template in the EntreLeader’s Guide to Business Finances .

But before we get to that, let’s unpack what a budget is and why you need one.

Don't Let Your Numbers Intimidate You

With the EntreLeader’s Guide to Business Finances, you can grow your profits without debt—even if numbers aren’t your thing. Plus, get a free business budget template as part of the guide!

What Is a Business Budget?

A business budget is a plan for how you’ll use the money your business generates every month, quarter and year. It’s like looking through a windshield to see the expenses, revenue and profit coming down the road. Your business budget helps you decide what to do with business profit, when and where to cut spending and grow revenue, and how to invest for growth when the time comes. Leadership expert John Maxwell sums it up: “A budget is telling your money where to go instead of wondering where it went.”

But here’s what a business budget is not: a profit and loss (P&L) report you read at the end of the month. Your P&L is like a rearview mirror—it lets you look backward at what’s already happened. Your P&L statement and budget are meant to work together so you can see your financial problems and opportunities and use those findings to forecast your future, set educated goals, and stay on track.

Why Do I Need to Budget for My Business?

Creating a budget should be your very first accounting task because your business won’t survive without it. Sound dramatic? Check this out: There are 33.2 million small businesses in the United States. Out of the small businesses that opened from 1994 to 2020, 67.7% survived at least two years. But less than half survived past five years. 2 The top reasons these businesses went under? They hit a wall with cash-flow problems, faced pricing and cost issues, and failed to plan strategically . 3

As a business owner, one of the worst feelings in the world is wondering whether you’ll be able to make payroll and keep your doors open. That’s why we can’t say it enough: Make a business budget to stay more in control and have more financial peace in running your business.

A budget won’t help you earn more money, but it will help you:

Maximize the money you’ve got
Manage your cash flow
Spend less than your business earns
Stay on top of tax payments and other bills
Know if you’re hitting your numbers so you can move at the true speed of cash

How to Create a Budget for a Business

Your ultimate goal is to create a 12–18-month business budget—and you will get there! But start by building out your first month. Don’t even worry about using a fancy accounting program yet. Good ol’ pen and paper or a simple computer document is fine. Just start! Plus, setting up a monthly budget could become a keystone habit that helps kick-start other smart business habits.

Here’s how to create your first budget for business:

1. Write down your revenue streams.

Your revenue is the money you earn in exchange for your products or services. You’ll start your small- business budget by listing all the ways you make money. Look at last month’s P&L—or even just your checking account statement—to help you account for all your revenue streams. You’re not filling in numbers yet. Just list what brings in revenue.

For example, if you run an HVAC business, your revenue streams could be:

Maintenance service calls
Repair services and sales
New unit installation
Insulation installation
Air duct cleaning

2. Write down the cost of goods sold (if you have them).

Cost of goods is also called inventory. These expenses are directly related to producing your product or service. In the HVAC example, your cost of goods would be the price you pay for each furnace and air conditioning unit you sell and install. It could also include the cost of thermostats, insulation and new ductwork.

3. List your expense categories.

It’s crazy how much money can slip through the cracks when we’re not careful about putting it in the budget. Think through all your business expenses—down to the last shoe cover your technicians wear to protect your customers’ flooring during house calls. Here’s a list of common business budget categories for expenses to get you started:

Office supplies and equipment
Technology services
Training and education

Related articles : Product Launch: 10 Questions to Ask Before You Launch a New Product New Product Launch: Your 10-Step Checklist

4. Fill in your own numbers.

Now that you have a solid list of revenue and expense categories, plug in your real (or projected) numbers associated with them. It’s okay if you’re not sure how much you’ll sell just yet or exactly how much you’ll spend. Make an educated guess if you’re just starting out. If your business has been earning money for a while, use past P&L statements to guide what you expect to bring in. Your first budget is about combining thoughtful guesswork with history and then getting a more realistic picture month over month.

5. Calculate your expected profit (or loss).

Now, number nerds and number haters alike—buckle in. We’re about to do some basic accounting so you know whether you have a profit or loss. This is your chance to figure out exactly how much you’re spending and making in your business.

Take your gross revenue (the total amount of money you expect to make this month) and subtract your expenses and cost of goods sold to find your profit or loss. Here’s what that calculation looks like:

Revenue - Expenses - Cost of Goods Sold = Profit or Loss

Don’t freak out if your first budget shows a loss. That actually happens a lot with your first few monthly budgets. You’re learning and getting context on what’s coming in and going out so you can make adjustments. Keep doing your budget, and before you know it, you’ll be a rock star at telling your money where to go, planning for emergencies , investments and opportunities , and building momentum.

6. Review your budget often.

Whew! Once you get that first business budget under your belt, take a deep breath and celebrate. You’ve just done something huge for your business! (You’ll also be happy to know, budgeting gets easier from here since you can copy and paste your first one and tweak your income and expenses each month.)

But here’s the thing: Your budget can’t just sit in a drawer or on your computer. You’ve got to look at it consistently to make sure you’re actually following it.

Weekly Review

At least once a week, someone in your business (whether it’s you, a qualified team member or a bookkeeper) needs to track your transactions so you know what’s happening with your money all month. Then you can make adjustments before you have more month than money.

Every time you review your budget, ask yourself these three questions:

Are we on target to hit our revenue goal this month?
If not, what we can change to get there?
Are there any expenses we can cut or minimize?

Monthly Review

You also need to review your business budget when you close your books every month to compare it to your actuals—your P&L. Otherwise, how can you know how you’re doing?

7. Work toward a 12–18-month budget.

Now that you’ve created your first month’s budget, move on to the next one. You’ve got this! The more budget-building reps you get in, the better you’ll be at looking forward and planning for growth. In no time, you’ll reach that ultimate goal of a 12–18-month budget. Just keep adjusting as you go based on all you’re learning about getting an accurate road map for your finances.

As you start owning your numbers, remember: It’s okay if you’re a little intimidated by the process of accounting and making a budget for business. But it’s not okay to avoid the financial details that will make or break you. So just keep applying the basics we covered and keep moving forward.

Follow the steps above to create your budget, and review it often to stay on track.

Want a tool to make budget building simpler? Check out the EntreLeader’s Guide to Business Finances. It includes an easy-to-use small-business budget template in the extra resources section.

What are the benefits of budgeting?

A business budget will help you:

Make informed, strategic decisions
Invest in under-resourced areas
Trim over-resourced areas
Plan for the future
Set goals and track your progress

Does using a small-business budget template save time?

Yes! Using a small-business budget template helps you plug in the numbers you need to operate with more confidence and fewer wrong turns. Check out the small-business-budget template inside our EntreLeader’s Guide to Business Finances .

How do I budget if I own a seasonal business?

Just like farmers put extra hay in the barn to cover leaner months, if you’re a seasonal business owner, you need to set aside resources in times of plenty to cover months your business turns down. Use your P&L statements to go back in time and look at financial performance year over year. Then, create your business budget based on what you learn and on any changes you see coming. You can also go to trade conferences to get an idea of your industry’s seasonal benchmarks.

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About the author

EntreLeadership

EntreLeadership is the part of Ramsey Solutions that exists to help small-business owners thrive by mastering themselves, rallying their teams, and imposing their will on the marketplace. Thousands of leaders use our proven EntreLeadership System and resources to develop as leaders and grow their businesses. These resources include The EntreLeadership Podcast , EntreLeadership Elite digital membership , books, live events, coaching sessions and business workshops. Learn More.

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Dave Ramsey’s Advice on Starting a Business for New Entrepreneurs

Starting a business on a budget is no easy task. There’s always a product, gadget, gimmick, or location that someone’s willing to convince you that you need — the worst part is when you’re convincing yourself. After signing papers on my own space last Tuesday, I’m right in the thick of it but got some great advice from an unexpected source, Mr. Dave Ramsey. A listener wrote in to ask Dave his advice on starting a business.

4 Business Tips from Dave Ramsey

He gave four solid points:

1. Do You Love It?

Mr. Ramsey says you better love what you’re doing because you will work you to death .

My parents were both self-employed when I was young and I can tell you from personal experience, the only guarantee about being self-employed is that your day won’t end at 5 p.m. I remember when I was 10 years old bringing tea into my mother at 10:00 p.m. because she had to finish putting together a presentation for a client the next morning; most Saturdays my dad would tell me we needed to stop by a job site on our way to anyplace we were going so he could “check-in.” I didn’t mind. My parents loved what they did, and when my parents were tired, it was usually a “happy tired.”

Now, I come home from my day job and put in extra hours to launch our business, and my husband watches.

Right now he’s not too happy because I’m still in panic attack mode, but as soon as I have to stop putting out money for initial expenses, that will go away. It’s worth it because I love what I do. I hear a lot of people say they want to start a business because they “want to make money,” but Mr. Ramsey is correct: It takes a true passion for what you are doing. Otherwise, the compulsive e-mail checking will seem like drudgery immediately. You will start to spend less and less time making your business great, and you will fail .

2. Plan Beyond Your Business Plan

Mr. Ramsey said to do a business plan…projecting what you make…what you spend…and know it will cost twice as much and take twice as long.

You might even make “ half as much ” as you think too. Putting together a business plan is tedious work. Bplans has a free business plan template available. Make use of it.

Then plan for a contingency. A contingency is a chance occurrence, a possibility you cannot foresee.

My father was in construction and had a set rule of a minimum of 20% contingency. That means for every dollar budgeted, you added 20 cents for Murphy’s law. The business will always cost you more than you think, but if you have a good business plan and a solid budget, it won’t break you.

3. Do Not Borrow Money

Mr. Ramsey continued to advise to grow slowly, buy used…be the tortoise, because…the tortoise always wins.

In our “I want it now” society, most entrepreneurs think they have to borrow money so they can start their business immediately. They seem to think they will miss out on the opportunity, or someone else will take their idea if they don’t move right now! I hate to break it to you, but most songs have been sung, most movies are remakes, and it is better to start a business smart than to start one fast.

It’s not easy.

I wasn’t able to escape borrowing some money to start my business, but I cut my initial expenses by 30%, paid cash for half, and got an unsecured low-interest rate loan for the remaining. I made sure that even if the business fails, it’s within my ability to repay.

If you have to borrow money, make sure you can borrow it without attaching your house or car, and that you can pay it back without assistance. Remember, your goal for a business is to have cash flow, not debt coverage.

4. Read Every Book You Can Find

According to Mr. Ramsey, an investment in a book is an investment in your mind and an investment in your future. He recommended:

The E-Myth by Michael Gerber
Guerilla Marketing by Jay Conrad Levinson
Tribes by Seth Godin
The Legend of The Monk & The Merchant by Terry Felber
Who Moved My Cheese? by Spencer Johnson

There is so much information out there. Take in anything you can, but take it all with a grain of salt. In other words, just because something makes sense, doesn’t mean you make it your business. Read different perspectives on the same issue. Consider where the author’s coming from. Do you think (s)he would have the same perspective if he had a service business instead of a product business?

Other sources of information are webinars, seminars, and workshops. If you’re lucky enough to live close to a college campus, there’s a lot of opportunities for free educational workshops that you should take advantage of whenever possible.

Bottom Line

I have to say Mr. Ramsey had some excellent points. In a perfect world, I’d use them all, but instead, I’ll love what I do, plan as best I can while remembering I can’t plan for everything, borrow as little money as humanly possible, and keep learning as much as I can to make myself successful.