Blog | 18 Oct 2024

How To Create A Business Budget

By Amir Ortas, Partner | Accounting, Advisory

You have big plans for your business. You want to expand to new regions, build up your client base, and grow your product or service range. One major question remains: How will you fund these plans?

If you want to invest in new opportunities and continue growing your business, you need to consider your long-term financial goals. A business budget will help you keep track of what’s coming in and out of your business and give you a better idea of how to allocate your cash flow. At this point, you should know why creating and keeping a business budget is important (and if you don’t, read part 1 of our Business Budgets 101 series before continuing!). Here, we’ll tell you exactly how.

Follow these steps to get started on your business budget planning:

1.Review previous financial data (if applicable) and look at industry trends & standards.

Did your projections from last year match up to what was spent & earned? What can you gather from last year’s data that can inform this year’s budget planning? This is a great starting point for your budget, as it gives a realistic look into what you can expect and reasonably predict in the coming year.

Just starting your business and don’t have historical financial data? Examining similar industry trends and standards will help you understand what it takes for businesses similar to yours to operate.

2.Calculate revenue

At this point, you should have at least some income streams. Identify them and find out just how much money is coming into your business each month. Keep in mind that revenue is the money in your hands before expenses have been deducted. If you haven’t yet made money, make an educated guess of what you think you’ll be making based on the research you conducted in step 1.

3.Determine expenses

When it comes to expenses, they fall into two categories: fixed and variable costs. Fixed expenses are those that stay the same no matter how much money your business is making. Examples of fixed expenses within your business may include employee salaries, rent, property taxes, and insurance. Variable expenses are those that can fluctuate depending on your business’s output or production. Examples of variable expenses include raw materials, hourly employee wages, and some utility costs.

You may also want to set aside some money in an emergency-type fund for unexpected one-off expenses like computer replacements or equipment repairs. It’s also important to plan for underperforming revenue expectations, especially for new businesses, or businesses going through change, to be able to cover your expected fixed and variable costs without worry.

4.Put together your profit and loss (P&L) statement and create your cash flow projection.

Your P&L statement will include the revenue and expenses you calculated in the previous steps. Subtract your expenses from your revenue to see what profit your business has made! Your P&L statement will inform you of what you should be expecting in net profit month-to-month.

Remember: your revenue and expenses won’t necessarily look identical every month, especially if your business is seasonal.

5.Don’t forget about taxes!

You’ve calculated your revenue, you’ve deducted your fixed & variable costs. That profit looks nice, right? Unfortunately, it doesn’t end there. From federal and provincial tax deductions to CPP and EI contributions, taxes take a good chunk out of your income.

Hiring an accounting firm (like SBLR!) that specializes in tax planning is a highly recommended step to save money before, during, and after tax season.

6.Review your budget to keep everyone (including yourself!) accountable.

A budget is only as good as your ability to stick with it! As your business continues to grow, so should your financial discipline. Reviewing your budget periodically with all employees who have the authority to spend money on the company’s behalf can ensure that everyone is on the same page and staying within budget.

Reviewing your budget on a regular basis also serves as an important warning sign if things in your business are going awry, such as cash flow problems. By identifying these issues as early as possible, you can work on overcoming them before they become more problematic.

Taking a look at where you’re spending and earning the most money can inform future decisions and allow you to make improvements to your business. On the other hand, failure to properly budget and cash flow plan can result in poor performance. We get it: budgeting and finances can be confusing and overwhelming. At SBLR, we consider every aspect of your business and its financial status to advise you on how to build ahead.

Business budget planning isn’t a difficult task when you have expertise and experience on your side. Give us a call at 416-646-0550 or request a consultation—we can create a roadmap to success together.

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