How to Prepare a Budget for Your Business


All business owners understand the importance of budgeting on a theoretical level. But a lot of them believe they can’t do it because they have a sense that it’s too technical and complicated. As a result, many business owners hesitate to prepare a plan.

If you think you can’t do it, you are underestimating yourself.

The process is very easy. Just follow these steps to create a budget plan that you can use to get a handle on your company’s finances.

  1. List all your expenses and categorize them. Your expense items may be categorized into “fixed” or “variable” expenses. Your fixed expenses are those that you will necessarily incur like office rent, machineries and equipment, etc. On the other hand, your variable or operating expenses are those that depend on the level of your production.
  2. Estimate what you spend on each item. Look through your receipts and checkbooks to see how much you normally spend on each item.
  3. Estimate your income. Your monthly income consists of your expected turnover or revenues from your sales. You can use your average monthly income as your basis. But if you’re determined enough, you can use your sales target as your projected income.
  4. Balance. This is the most exciting part—setting off your expenses against your income. Once you have computed your projected expenses for your combined fixed and variable costs, you’ll be able to determine whether your income is enough to cover all your expenses by deducting them against income.
  5. Adjust. You cannot spend more than you earn. If you find that your total expense amount is greater than your income, you will have to adjust your expenses. This is where the importance of categorizing your expenses comes into play—you have to cut back on your variable expenses, since your fixed costs are…well…fixed!
  6. Stick to your plan! By living by your plan, you are essentially moving yourself closer to your goals. But you don’t have to be rigid. Review your budget plan regularly until you find it works well for you!

By developing a budget plan, you can be sure that you are constantly moving towards your financial goals!

What’s your favorite step in budget planning?

For a simple, straightforward guide to mastering the critical areas of your business finances — in language you can understand — download our popular ebook, 7 Financial Principles Every Business Owner Needs to Know.”

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