The Importance of Starting and Maintaining a Business Budget

financial budgeting

A large percentage of small businesses fail within one year of operation.

While circumstances vary as to the cause, one of the obvious reasons is that they’re financially incapable of continuing to operate.

There is a lot of money that goes into starting and running a business.

You need certain equipment, marketing, funds for hiring people and for emergencies.

The only way to manage all of this is to have a budget. Once you establish one, you need to stick to it.

Your Business Plan

Before you go on vacation, you plan your trip. You record where you’re going. You check to see how long it will take and how much it will cost to get there. You estimate how much money you’ll need to have for spending. Then you save up accordingly.

Your business plan is no different. It helps you to achieve a goal. It keeps you focused on what your goal is. If you have a plan and a goal, you are more likely to succeed.

Part of your business plan is estimating how much it would cost to start and continue to run your business. It’s how businesses get funding from investors.

When investors read a business plan, they check to see if the plan is solid and if the budget is reasonable and worth the cost. It is important for them to know exactly what they are investing in and where their money is going before they decide to invest.

You can take a similar approach. Once you get out your business plan, review the financial section(s). You need to know exactly where your money is going. This is going to help you get out a budget.

Paying Your Business Expenses

Put simply, anything that helps you run your business is a business expense. When you create your budget, you need to put both recurring expenses and one-time expenses in your plan.

Here is a list of some expenses that typical businesses have in their budget:

  • Rent/Lease payments
  • Utilities (light, gas, telephone, etc.)
  • Marketing
  • Business Credit Card
  • Web Services (web hosting, Dropbox, etc.)
  • Gas/Travel
  • Repair/Maintenance
  • Payroll
  • Office Supplies

These expenses help your business to continue operating. They’re important. You should budget for them every month, just like you would with a personal budget.

This sounds intimidating, and it can be if you do it manually. That may be a lot of figures to handle. Investing in an electronic invoicing service can help. You can put the cost of that in your budget too, since it is a business expense.

If there is any money left over, save it. Don’t just save it into one account like you would do a personal savings account. Earmark it for whatever particular category it falls into. You never know when you’ll need something due to an emergency.

Reinvesting in Your Business

At some point you must take part of the money you’re making to reinvest in your business. This means you have to closely monitor your finances for a few months to make sure that you can afford it.

Figure out how much you can spend safely, while still having enough money to fall back on. Next, decide what you want to reinvest in. Do you want a better marketing campaign? Do you need new computers or an upgraded web hosting service? Then purchase it, and implement the changes as soon as possible.

Reinvesting in your business does three things:

  • It shows you are serious about keeping your business running as long as possible.
  • It helps your business run more efficiently.
  • It frees up time for you to invest in something else.

Reinvesting can be a slow process, especially if you are on a tight budget and don’t have enough funding coming in. It’s not impossible. It may take you a while to get to the point where you consider your business financially successful, but remember, this isn’t a race. Slow and steady is a good pace.

Increasing Your Net Gain

Anything left over after your expenses are paid is net gain. If you make $10,000 a month, and you spent $3,000 on expenses, your net gain is $7,000.

You can increase your net gain by making smart financial decisions. Is it really necessary to have 10 part-time employees? Would it be cheaper to have five full-time employees, or 3 part-time and 2 full-time employees?

How much money can you save if you cut out the middle man? These are the types of financial decisions that can help save you money, thus increasing your net gain.

Here’s a suggestion for the first step in increasing your net gain: invest in an electronic financial service. Keeping account of the paperwork can be just as big a hassle as figuring out the numbers.

According to, you can save money and time by doing your finances electronically. It’s also far less stressful than going through file cabinets trying to find what you’re looking for. Once you streamline your business’s finances, you’ll find that you can adjust your business plan to make room for growth.

(Photo by 401(k) 2012/ CC BY)

Tina Su is the editor at Work Awesome and Think Simple Now.


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