How to Create a Business Budget: Simple 4-Step Guide for Small Business Owners
If you've never created a business budget before, you're not alone.
According to Intuit QuickBooks, 61% of small business owners don't use a formal budget. But here's what matters: businesses that budget are twice as likely to experience growth.
So if you're ready to stop guessing and start growing, this guide will show you exactly how to build your first business budget—no complicated spreadsheets or accounting degree required.
What Is a Business Budget?
A business budget is a financial plan that tracks your income and expenses over a specific period (usually monthly). It helps you understand where your money comes from, where it goes, and how much profit you're actually making.
Think of it as a roadmap for your business finances—one that helps you make smarter decisions, avoid cash flow problems, and plan for growth.
Why Every Small Business Needs a Budget
Creating a budget gives you:
Clear visibility into your cash flow
Control over business expenses
Confidence in financial decisions
Stability during slow months
Growth potential through strategic planning
Now let's build yours.
Step 1: Calculate Your Average Monthly Income
Start by looking at your revenue over the last 3 to 6 months.
Here's how:
Add up all income sources: services, product sales, tips, and any other revenue
Divide the total by the number of months reviewed
This gives you your average monthly income
Example: If you earned $18,000 over 6 months, your average monthly income is $3,000.
Pro tip: Use bank statements or your point-of-sale (POS) system to pull accurate numbers quickly.
Step 2: List All Your Monthly Business Expenses
Now track where your money goes each month.
Common business expenses include:
Rent or studio fees
Supplies and inventory (backbar, retail products, materials)
Software subscriptions (booking systems, POS, accounting tools)
Phone and internet (business use)
Business insurance
Professional development (courses, certifications, workshops)
Marketing and advertising (social media ads, print materials, website)
Bank fees and credit card processing fees
Utilities (if applicable)
Action step: List every expense and add them up for your total monthly cost.
Don't forget irregular expenses like quarterly taxes or annual insurance premiums—divide these by 12 and include them in your monthly budget.
Step 3: Calculate Your Monthly Profit (or Loss)
Use this simple formula:
Monthly Income - Monthly Expenses = Net Profit
If the number is positive: You have profit! Use it to build an emergency fund, reinvest in your business, or increase your owner's pay.
If the number is negative: You're spending more than you earn. It's time to either reduce expenses or find ways to increase revenue (raise prices, add services, improve marketing).
Step 4: Choose a Budget Tracking Method That Works for You
You don't need fancy software to manage your business budget. Choose a system that fits your style and stick with it.
Popular options:
Pen and paper or notebook – Simple and tactile
Google Sheets or Excel – Free templates available online
Accounting apps – QuickBooks Self-Employed, Wave (free), FreshBooks, or Square Dashboard
The best budget tracking tool is the one you'll actually use consistently.
Recommendation: Review your budget weekly at first, then monthly once you're in a rhythm.
Final Thoughts: Budgeting Is How You Build a Profitable Business
When you have a business budget, you stop reacting to financial surprises and start making intentional, informed decisions.
That's how you create stability, build confidence, and unlock long-term profitability.
Ready to get started? Grab a notebook or open a spreadsheet and follow these four steps today. Your future self (and your bank account) will thank you.
FAQs About Creating a Business Budget
Q: How often should I update my business budget?
A: Review it monthly and adjust quarterly as your business grows or changes.
Q: What if my income varies every month?
A: Use a 3–6 month average and build an emergency fund to cover slower months.
Q: Do I need an accountant to create a budget?
A: No! Start with a simple budget on your own. As your business grows, consider working with a bookkeeper or accountant for tax planning.
Q: What's the difference between a budget and a profit and loss statement?
A: A budget is a forward-looking plan. A profit and loss (P&L) statement shows what actually happened in the past.
Related Topics: small business budgeting, business budget template, how to budget for a small business, cash flow management, monthly business expenses, profit and loss tracking
