Managing your money

Get Started: Budgeting for Your Small Business

27 September 2017
5 minute read

Emma Doyle

No matter their size, maintaining a healthy cashflow is essential to the prosperity of all businesses. With recent research by C2FO, finding that 54% of SMEs say that experiencing cashflow problems is in fact the biggest obstacle to their business growth.

A key way to manage cashflow well is to have a strong focus on your business’ budget. Victor Butcher, from Butcher Financial Services says that your budget is like “a roadmap for your company. You need the roadmap to understand where you’re going with your business. Without it, it’s like being in a car without a map or GPS system. You can hope you’re going in the right direction, but you don’t know.”

To help you take more control over your business and its growth, we’ve built this simple guide to breakdown everything you’ll need to know when budgeting for your small business.

Please note that this guide has been created for informational purposes only, and should not be relied on for tax, legal or accounting advice. For qualified professional guidance in these areas, please consult your own accounting advisors before you make any decisions.

Preparing Your Budget

Profit and Loss

To get started on your business’ budget, you’ll need to gather all the relevant financials together. This should include:

Your income: Make sure to think about all of your sources here: sales, hourly earnings, loans, investment etc. For forecasting purposes, it can be worth marking whether this income is recurring (from regular customers / orders) or expected income (what you predict your business is likely to earn).

Your expenses: Like your income, can also be useful to break these down further, this time into recurring expenses (such as rent, payroll, and bills) and sundry costs (including occasional payments like office supplies). Don’t forget to include costs such as depreciation of business assets, such as computers, that lose value with age; overheads, like rent and energy; payroll, including salaries, insurance, and benefits; and debt payments.

Altogether, this can be recorded in a Profit and Loss Statement. This is a document of all of your income subtracting your expenses; telling you, at a glance, whether your business is making money or if there are unprofitable areas.

Balance Sheet

You may also want to put together a Balance Sheet. This document can tell you the difference between what you own and what you owe, accounted for in two parts: a plus side and a liabilities side. Your balance will be your plus minus your liabilities; for example, the sum of your sales, minus the cost sum of ordering stock.

On the plus side of your balance sheet you will record the value of everything owned by your business (including land and equipment), the money in your business’ accounts, and the figures on any invoices that have been sent to clients but not yet paid.

The liabilities side will include any business taxes or expenses that are due to be paid, and any loans or other business debts that you have.


To gain the most valuable insight from your budget when using it, remember to be as accurate as you can with all of your figures and to keep them updated.

Tom Bason, Finance Director at Liberis says: “To keep on top of things, make sure to constantly revisit your budget and refresh it regularly. Small businesses are dynamic and they change week to week in terms of sales and expenses, so you want to update your budget monthly if you can so you can stay in control of your finances.”

Extra Help

When preparing your budget, you may want to the consult an accountant or bookkeeper who can help with crafting predictions for your business’ finances. But the task may be something that you can do yourself if you’re willing to put the time in.

There is also a world of software out there, such as Xero and Sage, that can help you record all your income and expenditure in real time so you don’t have to document it manually. These systems can be accessed anywhere, and can visualise your finances into useful graphs and charts so you can easily spot trade patterns.

Using Your Budget

Experimenting With Profit

Your budget should operate on the basis of: Income – Expenses = Profit. Once you have this figure, or at least an estimated figure, you’ll be able to figuratively test financial variables in your business and plan how to use your profit in the future.

“It’s best practice for all business owners to plan around scenarios in their budget,” says Tom. “Play around with different situations to experiment with what may happen financially if your sales were to double, or if your suppliers were to up the costs of their goods for example. Have one budget, but do see what it could do.”

Some scenarios to test may be: how revenue will be affected if sales were to rise by a certain percentage; or if you were to lose or gain a big client; or to negotiate a new deal on any of your fixed expenses.

Whilst taking this closer look at your finances can help you identify areas where you can save money and give you an idea of what cashflow will look like, it can also allow you to scope new opportunities for utilising profit.

You may want to continue driving profits by reinvesting them in the business, or making some significant payments on any debts whilst you have the capacity to do so. And if you own a seasonal business, it could be helpful to put a cut of any additional profit aside to safeguard you over your quieter periods.


Opposing the promise of profit is, of course, risk; which should be planned for as meticulously as profit is. Make sure to define and understand both short and long-term risks, such as changes in government policies, demands of your workforce, seasonal fluctuations in sales and staff, and the risk of natural disasters.

Many business risks will be able to be insured against; you can find out more about business insurance – and a breakdown of our Top 20 Tricky Insurance Terms – in our guide, Be Smart: Insurance For Your Small Business.

“In terms of planning ahead, definitely make sure to stay on top of any changes to tax, and the correct tax legislation that applies to you and your business,” says Tom. “Make sure you’re on the right VAT scheme and whether that be a flat rate VAT scheme too. The HRMC site is best for keeping up to date with this, and speaking with your accountant on a regular basis.”

Making Savings

“When looking at your figures and allocating funds, always try and make sure you’ve got some contingency, just something put aside for a rainy day,” suggest Tom. “There’s bound to be unforeseen situations that you’ll need some support for, so it can be smart to have that buffer there just in case.”

You can make an effort to increase this emergency amount by using your business budget to smartly allocate funds and spot where you can make savings.

Offering an example method to this, Keith McFarland, founder of McFarland Strategy Partners, says to: "Take an honest look at what revenue is likely to do over the next year; then reduce it by 10% and adjust your business plan to that revenue number. Figure out where your core leverage points are in your business model and make sure these are adequately funded. Cut anything that is not in the 20% of the activities that generate 80% of the results. Once you have scoped the business, get your folks together and talk to them honestly about the environment ahead and what you are doing to address it."

Spotting Patterns

By regularly mapping out the significant amount of data in a Profit and Loss Statement or Balance Sheet, you’ll also be able to:

Navigate patterns in your sales cycle so that you can plan stock, marketing, and any purchasing efforts accordingly.

And, as a seasonal business, you’ll be able to pinpoint the highs and lows in your trade too; so, you can make sure you’ll have enough in the bank to cover your downtime. You can also make the most of these quieter periods by using them to work on other areas of the business, such as experimenting with marketing or maintaining customer relationships.



Create a Business Budget in 5 Simple StepsFreshBooks

How To Create A Small Business Budget - Xero

How To Start A Business Budget - Inc

C2FO Working Capital Outlook Survey Finds SMEs Focused on Growth despite Brexit in Europe and US Elections - C2FO

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