Budgeting 101 for Small Businesses

Your Easy Guide to Financial Success

For small and micro businesses, getting your budget right can mean the difference between just scraping by and really thriving. The more you can become familiar with your numbers and what you need to work with in your business, the more comfortable you’ll be! As a winemaker by trade, this is something I (Shelley) took a while to get savvy in - but the great thing is, these are skills that can be learnt! In this easy-to-follow guide, we’ll walk you through the essential steps of setting up a budget that works for your business, helping you manage money like a pro.

Step 1: Why Budget Anyway?

Before we dive into the numbers, let’s talk about why budgeting is crucial. With a solid budget, you can:

- Plan ahead for expenses and investments.

- Keep a tight grip on your income and outgoings.

- Spot ways to save money and boost efficiency.

- Brace yourself for any financial surprises that come your way.

A smart budget lets you make sharp decisions that keep your business stable and on track for success. Without a budget? Chaos ensues. Trust me.

Step 2: Know What’s Coming In

Start by figuring out where your money’s coming from. This includes everything your business earns, like sales from products or services. For instance, if you own a café, count your earnings from coffee sales to catering gigs. If you offer services or consulting, treat each ‘type’ of service as a product. What does each ‘product’ bring into your business? Knowing what you expect to earn gives your budget a solid starting point.

Step 3: Tally Up Your Costs

Sort your expenses into two categories: fixed costs, such as rent and salaries, and variable costs, like materials and marketing efforts. For example, a small boutique might have fixed expenses that include rent and staff wages, while variable costs could involve inventory and promotional activities. If you're running the show solo, don't forget to account for your own time—it's a valuable asset. 

“One of the biggest lessons I've learned over the past five years is to not underestimate my worth. Like any key resource, your time needs to be compensated and valued appropriately. Make sure you’re factoring in your own 'salary' as a critical part of your budget. You deserve it!” - Shelley Cox

Step 4: Look Ahead

Next up, take a stab at forecasting your future expenses and income. Even if you're unsure, a rough estimate is better than flying blind. Think about seasonal fluctuations or any plans you have to expand that might impact your finances. For instance, if you operate an online store, anticipate an increase in sales during the holiday season and adjust your budget accordingly.

Step 5: Set Financial Targets

What are your financial goals? Why are we in this game? What's going to keep us going, keep our doors open, and push us to reach higher? Whether you aim to increase sales by 10% or reduce expenses by 5%, setting clear financial targets is crucial. These goals will not only steer your spending but also help you track how far you've come and how far you still need to go.

Step 6: Lay Out Your Budget Plan

Now, it's time to bring everything together. Use a reliable spreadsheet or our Google Sheets template from our Pricing Playbook—just as effective as the classic pen and paper! Subtract your projected expenses from your expected income to determine if you're on track to make a profit. For instance, if you estimate you'll bring in $50,000 and expect $40,000 in expenses, you're poised to net a $10,000 profit.

Step 7: Keep a Watchful Eye

Remember, a budget isn’t set in stone; it’s a tool to guide you. Regularly check your actual spending against your budget. If you’re overspending in one area, you might need to tighten up or rethink your strategy. I like to set up a recurring task reminder in my calendar for once weekly - keep it simple!