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Definition & Examples of a Business Budget
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In This Article
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In This Article
- What Is a Business Budget?
- How a Business Budget Works
- Do I Need a Business Budget?
- Example of a Business Budget Template
A business budget estimates an organization's revenue and expenses over a specific period of time.
Learn more about how a business budget works and get an example of one.
What Is a Business Budget?
A business budget provides an accurate picture of expenditures and revenues and should driveimportant business decisions such as whether to increasemarketing, cutexpenses, hirestaff, purchaseequipment, and improve efficienciesin other ways. It also outlines yourorganization's financial and operational goals, so it may be thought of as an action plan that helps you allocate resources, evaluate performances, and formulate plans.
How a Business Budget Works
The basic process of planning a budget involves listing yourbusiness's fixed and variable costs on a monthly basis and then deciding on the allocation of funds to reflect goals.
Businesses often use special types of budgets to assess specific areas of operation. A cash flow budget, for example, projects your business's cash inflows and outflows over a certain period of time. Its main use is to predict your business's ability to take in more cash than it pays out.
Most businesses have fixed costs that are independent of sales revenue, such as:
- Building or office eases or mortgage costs
- Loan payments (if using debt financing)
- Insurance
- Vehicle leases (or loan payments if the vehicle is purchased)
- Equipment (machinery, tools, computers, etc.)
- Payroll (if employeesare on salary)
- Utilities such as landline phone and internet charges
Variable costs increase or decrease according to the level of business activity. Examples include:
- Contractors'wages or commissions (for salespeople)
- Utilities such aselectricity, gas, or waterthat increase with activity
- Raw materials
- Shipping and delivery costs
- Advertising (can be fixed or variable)
- Maintenance and repair of equipment
It is important to be realistic with your budget projections. If in doubt, be conservative and overestimate your expenses and underestimate your revenues. It is particularly difficult if you are starting a new business and have no previous year's budget figures to guide your estimates. In this case, it is typically much easier to estimate expenses than revenues.
As the budget year progresses the estimates should be updated monthly with actual figures, enabling you to check the accuracy of your forecasts. Note that there often are radicaldifferences between actual and projected revenues and expenses due to unforeseen business circ*mstances and/or changing business and economic cycles, such as:
- Gaining or losing a major client
- Having to purchase or replace expensive equipment
- An increase in rent
- Hiring employees
- An increase in competition
- Changes in the tax code
Do I Need a Business Budget?
If you own a business, then you need a budget.
A budget is an essential part of abusiness plan and is necessary for starting a new business. It plays an important role in determining your start-up and operating costs. Once your business is established, budgeting becomes a regular task that normally occurs on a quarterly or annual basis.
Without a budget, you may not know how your business is performing.
Note
Having a comprehensive budget is a requirement forobtaining business loans from financial institutions or seeking equity funding from investors.
Example of a Business Budget Template
A simple business budget template includesexpensescommon to most small businesses. You can use and modify a template as required to suit your own business, filling out your own information where applicable.Your completed budget might look something like this:
| Income | Actual | Budget | Difference |
| Operating Income | |||
| 1st Quarter Sales | $34,300.00 | $35,000.00 | -$700.00 |
| 2nd Quarter Sales | $35,250.00 | $35,000.00 | $250.00 |
| 3rd Quarter Sales | $31,300.00 | $30,000.00 | $1,300.00 |
| 4th Quarter Sales | $27,100.00 | $25,000.00 | -$900.00 |
| Total Operating Income | $127,950.00 | $125,000.00 | $2,950.00 |
| Non-Operating Income | |||
| Interest | $650.00 | $600.00 | $50.00 |
| Other | $1020.00 | $500.00 | $520.00 |
| Total Non-Operating Income | $1,670.00 | $1,100.00 | $570.00 |
| Total Income | $129,620.00 | $126,100.00 | $3,520.00 |
| Expenses | Actual | Budget | Difference |
| Operating Expenses | |||
| Rent | $12,000.00 | $12,000.00 | - |
| Insurance | $2,500.00 | $2,500.00 | - |
| Electricity | $1,150.00 | $1,100.00 | $50.00 |
| Gas | $1,250.00 | $1,100.00 | $150.00 |
| Internet | $600.00 | $600.00 | - |
| Phone | $2,200.00 | $1,900.00 | $300.00 |
| Travel | $2,300.00 | $2,100.00 | $200.00 |
| Salaries, Wages, and Benefits | $66,000.00 | $60,000.00 | $6,000.00 |
| Advertising | $1,200.00 | $1,000.00 | $200.00 |
| License Fees | $500.00 | $500.00 | - |
| Office Supplies | $430.00 | $500.00 | -$70.00 |
| Shipping and Delivery | $850.00 | $1,000.00 | -$150.00 |
| Maintenance and Repairs | $1,100.00 | $1,500.00 | -$400.00 |
| Other | $800.00 | $1000.00 | -$200.00 |
| Total Operating Expenses | $92,880.00 | $86,800.00 | $6,080.00 |
| Non-Operating Expenses | |||
| Smartphones | $1,800.00 | $2,000.00 | -$200.00 |
| Tablets | $1,500.00 | $2,000.00 | -$500.00 |
| Total Non-Operating Expenses | $3,300.00 | $4,000.00 | -$700.00 |
| Total Expenses | $96,180.00 | $90,800.00 | $5,380.00 |
| Net Income | $33,440.00 | $35,300.00 | -$1,900.00 |
Many budgets also include actual figures going back several quarters or years as a comparison for what is being projected for the upcoming quarter or year. Most accountingsoftware has options for budgeting/forecasting.
Key Takeaways
- A business budget estimates an organization's revenue and expenses over a specific period of time and drives important business decisions.
- Businesses often use special types of budgets to assess specific areas of operation.
- Budgets help companies understand start-up and operating costs and track performance.
- Most budgets include fixed and variable income and expenses.
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