Why You Need a Business Budget – 5 Key Reasons

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Financial planning is essential for you personally, and also for your home business. Keep reading to discover why you need a business budget, plus to find tips for making one.

My husband and I have spent a decade shoveling ourselves out of the massive debt we accumulated early in our married life. And while budgeting was something we did for our personal income, I never took time to make a business budget.

I mean, I kept track of my blogging expenses. I knew what I had in the bank, and whether or not I could afford to buy something new for my business. (Like an awesome new theme!)

But, as far as a business budget goes? I never stopped to make one. Instead, I just used my profit and loss spreadsheet to write down my expenses after they occurred.

I wasn’t being proactive.

Or making sure I was using my business money wisely.

So, this weekend I sat down and create my first business budget.

How to Make a Business Budget

I used Microsoft Excel to make my business budget. I’m sure Google sheets would work too.

I needed to keep track of four main areas:

• Business expenses
• Savings for taxes and future purchases
• Giving
• Payments to transfer to my personal account

These four areas need to add up to 100% of my income coming in.

Business Expense

First, I thought about all of my expenses. I wrote them down, along with their price, frequency, and due dates.

I wanted to get a monthly expense report, but many of my expenses are billed annually. You save money on Tailwind, website hosting, and many other services when you pay for a year up front.

Then, I let Excel do some math for me. I entered a formula to divide the total by 12, and drug it down through all my annual expenses. Then I could see my monthly totals:

My fees were a bit tricky to figure out. I primarily use Wave for invoicing, though some of my clients pay through PayPal. So, I used my past few months of payments to sort of get an average. Then I rounded up for both systems.

This is a screenshot of an early version. Before I finished up, I put all the numbers into the accounting format, and rounded them to two digits past the decimal.

BUDGET TIP: Go back through your income and expenses for at least a year during this phase. That way you can see if you forgot anything!

My expenses are currently 22% of my business. I’m working on slicing them, with a goal of getting down to 15%.

I’ll do this by continuing to switch to annual plans when I have the money, stopping some services I don’t use anymore, and earning more money consistently to increase my income.

Once I had my expenses figured out, it was time to move onto the other parts of my business budget.

Savings

I know I need to save for taxes. I also want a little bit of a cushion in my savings account to protect my business from a slow month.

Since my freelance writing income can come in waves, my goal is to have a full month of expenses in the bank. That way if I need it, I have it!

I also want to save a bit for a bigger purchase I’m hoping to make next year. There’s a course I really want, but I can’t justify it this year. And I learned the hard way not to go into debt for courses…

So now I save. A little bit each month adds up.

Altogether, I plan on saving 30% of my income. You may need to save more. Since we have so many kids, and our overall family income is low, our taxes are not very high.

If you don’t know how much to save, speak to a tax professional who can help you come up with the best number!

Giving

Being able to give more is one of the reasons I started my business. I’m excited to slowly add this in more purposefully.

I’d love to eventually get up to donating 10% of my profits. But, I’m not there yet. We’re still trying to finish off our personal debt challenge, so for now I’m just tithing 10% of what I pay myself from my business.

As a starter to the giving portion of my business, I’m going to support a missionary at $50 a month. It’s not a lot of money, but I know first-hand how hard it can be to raise support is as a missionary. I suspect most of my giving category from my business will go to support missions of some kind!

Paying Myself

When I add up my expenses, my savings goals, and my giving projects, I can find out how much I have left to transfer to my personal bank account.

For me, that number is now 50%. So, for every $1 I make with my business, $0.50 is coming to me as money to add to the personal budget.

When I get a payment, I automatically transfer 50% to my account. Having my business account at the same bank as our personal one helps make this easy.

I love that there’s no more guessing. I used to struggle to figure out how much to keep in my account, because I was always afraid I’d miss an expense.

Benefits of Making a Business Budget

Now that I shared how I made my business budget, and the look at why I made one, it’s time to jump into the benefits of doing so. Here are five reasons I’m so excited that I finally got my budget made:

1. You Know Your Bottom Line

How much do you need to make to ensure your business does what you need it to?

I’ve never really looked at this question from a budgeting perspective before. But, after redoing our personal budget too, it was time!

I know that I need to transfer $600 a month to our personal account each month to make that budget balance.

And, since only 50% of my income goes to our personal account, I need to make double that amount.

So, $1200 a month is my new minimum.

But, we are currently finishing off our final debt, and then will switch gears to building an emergency fund. So, our personal budget will take all I can manage!

My goal is $3000 a month. I’m currently sitting at an average of $2400 a month so I think this growth is doable. It’s already up from the $1000 a month I averaged last year.

Without a budget, I wouldn’t be able to have a hard and fast number. So, a business budget tells you what you need to make to meet all of your goals.

2. You Can Plan For Expenses

April is one of my most expensive months! It seems like most of my annual expenses come up for renewal this month.

Do you also have an expensive month?

With a budget, you can plan for those expenses. You can learn how much you need to put away each month to pay those annual expenses, and when the time comes you’ll have what you need.

You can also decide to save for new or one-time expenses. Put what you’d like to purchase as a line item, and when you have the cash saved, make your purchase.

3. You Can Analyze Your Expenses

When you have all your expenses written down in front of you, it’s easy to evaluate them. You can ask yourself:

• Am I still using this?
• Do I still need this?
• Is there a better way to spend this money?
• Is this worth the cost?

When you make a budget, it’s a great time to analyze your expenses and make changes as needed.

4. You Can Ensure Your Business Matches Your Values

Are you planning on being generous with your business income? Is there a cause or organization you’d like to support? Or could you donate some of your courses or books to someone in need?

You are the boss of your business. You can make sure it aligns with your values.

Budgeting is a great way to get an honest look at your income and expenses, and see what you can legitimately afford to do.

5. You Can Make Wise Decisions

Finally, a budget for your business allows you to make wise decisions. You can decide if you need to bring on new clients. Or raise your rates.

You can see if you are profitable. Or if you just have an expensive hobby.

A budget paints an honest picture of the state of your business. It puts everything in writing for you to see. There’s not guessing about how much you’re making or spending. It’s just the data.

And with data, you can be wise in how you run your business.

Need to start your freelance business? I highly recommend becoming a Virtual Assistant. It’s one of my most reliable income streams each month, and I’ve found it to be a great fit for busy moms.

Do You Have a Budget for Your Business?

I’d love to hear about your experience with business budgets in the comments.