Unfortunately, many small business owners neglect the crucial step of creating a clearly defined budget before spending money on behalf of the business. Without a budget the business is in danger of either overspending or spending on the wrong things because there are no limitations. A good budget will give the business owner a clear idea of how much money is available to spend, where to allocate the money, and when adjustments need to be made to the budget and the business model as a whole.
Use historical data from your business from prior years to estimate your business budget for the upcoming year. This will help you decide on the total amount of money that you should be working with for your overall budget as well as the more specific categories that you will list in your budget. If this is a new business, look at the annual reports of other businesses that are similar to yours to see how much these companies spend annually. Then scale the numbers up or down to be consistent with your own business.
- List the general categories for your budget in an Excel worksheet (column A). Common categories for a business budget include marketing, research and development, employees and independent contractors, office supplies, and equipment or tools. Add your own categories depending on your business type. Write this business budget in Microsoft Excel because it allows you to do automatic calculations.
- Break each general category of your budget down to more specific classes. For instance, under marketing, you would divide this into advertising, promotions, trade shows and website expenses. You can further subdivide your advertising budget into online ads, radio ads and newspaper ads.
- Create five new columns in your spreadsheet—four columns for each quarter and one final column that will total your budget for the entire year.
- Estimate the amount of money to be allocated to each category based on the factors that are most important to your business and your historical data. Break these numbers down by quarter and enter the amount in the appropriate column.
- Make adjustments where there is room for improvement. For instance, if you noticed that last year you did not spend enough on online advertising, add more to that category. If you spent a lot of money on product development but it yielded little to no results, scale back on that category. Your budget will be highly dependent on the type of business that you run. For example, if you run a billboard rental company, you might need to allocate a large amount of your budget toward equipment maintenance costs.
- Total everything at the bottom of your spreadsheet for each quarter. Total everything for the year in the last column of your spreadsheet so that you can get an idea of your yearly expenditures on each category in your budget. Finally, total that last column so that you can get the total spending for the year. Make sure that you are meeting your total expenditure limit as determined in step one. Make adjustments as necessary.