How to budget for starting a business

From governments to households, budgeting is how people manage their money. 

If you’re starting a small business, you’ll need a budget that maximises each penny. In this guide, we’ll walk you through some key aspects of budgeting for your small business.

Find out: 

• How to budget
• How to make budgeting effective
• Risks of not budgeting
• Benefits of budgeting tools

Budgeting as a concept is simple: record where your money is coming from and going to. Despite this simplicity, each business’ budget is different as it reflects their own circumstance and industry pressures. Below, we’ve included the key aspects that all budgets have and that you can apply going forward.

1. Calculate how much money you are making. Record all your income sources over a given period (usually a week or month) and generate a total figure. You’ll use this total figure to calculate your profit later on, so make sure you don’t miss any sources of income.

2. Separate your costs into fixed and variable categories. Expenses come in two forms: fixed and variable. Fixed costs include, but are not limited to, rent on your unit, payroll, and website hosting. Variable costs can be inventory for a certain month, electricity/gas, and travel expenses. During quieter sales periods, knowing which variable costs you can minimise can help you offset losses from fixed costs. 

3. Add any one-time costs or purchases. If you’re starting out, you’ll be acquiring necessary tools and equipment that you’ll only need to purchase once. As you grow, you might also have other less regular expenses, including things like quarterly billing for suppliers or annual billing for software packages. Sometimes equipment breaks so you have to buy it again. These sources of expenditure should be included in your budget as they still represent areas where you have lost or expect to lose money still.

Budgeting allows you to create a weekly target from these figures to work towards. Regardless of whether your business operates in total units sold, commission rates, or customer subscriptions, you’ll be able to predict how cuts or investments can affect your targets.

Budgeting is only effective when you use it routinely and effectively. But how can you maximise your spending power and make your money stretch further? Any good budget follows these steps: 

1. Review your spending regularly and set spending goals. As you start out, having the money to last the week will be a big accomplishment. But soon enough, you should take time to review your week’s sales and expenses to understand where you’ve been effective. When you create a reliable budget, making small and specific changes can help improve your finances and increase your profit. 

2. Be a smart spender. Expenses come easier than sales when you’re starting a business, that’s why finding reasonable prices on them is essential. As we mentioned before, in your first year, you’ll be making initial purchases just to set yourself up. However, taking time to compare costs and find deals can help you find better deals and save you money. 

3. Give yourself some space. You can’t expect the unexpected. For example, if you’re new to importing goods, you might not know how much border tariffs can cost. By giving yourself some space in your budget, you can resolve new problems as you come across them. And if sales take a dip, you’ll have some cash available to cover necessary costs just in case, too.

4. Reduce costs. Until your business becomes sustainable, your costs may outweigh your income. Reviewing your spending regularly to either eliminate or reduce your spending can help your budget be viable in the short term. With this habit established, regularly reviewing your books also helps you understand where you can save money even if you’re profitable in the future. 

At Countingup, we want to empower small business owners. That’s why we’ve put together expert advice on budgeting no matter what stage you’re at. Read our other guides covering:

• Introducing budgeting: Why is Budgeting Important to Small Businesses?
• Financial basics: What is Financial Planning? 
• Lean budgeting: How to start a business with no money

Your budget and financial accounts are more than a legally mandated record of your spending and income. They’re also an ongoing record of your business strategy as it evolves. 

You can miss out on valuable sources of income without this critical record of past performance. As you continue trading, you’ll learn your seasonal spending patterns, which advertising strategies bring in the most business, and how different suppliers affect your bottom line. 

An accurate budget also allows you to confidently tell investors and lenders that you know your value and how you’ll build your business. With this access to new investment, you’ll understand how to scale your budget using new techniques. Whether this is investing in new machinery, more staff or faster customer delivery, your business can reach new heights.

The Countingup app gives you a real-time view into your profit and losses to inform your budget every day. 

The 2-in-1 business current account and accounting software automates the time-consuming aspects of financial admin for small business owners across the UK, so that you have more time to focus on running your business.

You can also enjoy our handy receipt capture feature and expense categorisation so you can sort and file expenses with ease. And with our tax estimation tools, you can set aside a figure and have complete confidence in your books at the end of the tax year.

Find out more here and sign up free today.