Lesson 2: Business Budgeting

Running a business is a lot like managing your own personal finances—for it to be sustainable, you need to make sure you’re spending less than you take in. And much like managing your personal budget or your family finances, there can be lots of small but necessary expenses that add up.

But if you get business budgeting right, it can make everything else—including paying your taxes and saving for retirement—a lot easier.

Expenses large and small

A budget lets you plan and control your business expenses whether office rent or website hosting services. Even seemingly minor costs, like coffee with clients or printer paper, add up. If you’re operating outside of your means, you’ll never achieve profitability.

Here are a few expenses to account for that might go overlooked:

• Ads and marketing
• Networking events and client meetings
• Equipment, like your computer and phone
• Legal and accounting help
• Time tracking and invoicing software
• IT services, like cloud storage or virus-detection software

Which expenses you face—and how much you need to budget for them—depends heavily on your line of work. The key is to make sure you keep a handle on your expenses.

Budgeting tips

As you get used to working with your business budget, make sure that you:

• Review it monthly.
  • Compare your budget to your daily activity to see whether there’s room to cut costs. Are you actually using that time-tracking app or industry membership? If not, you may want to trim those expenses.
• Look for inefficiencies.
  • Consider whether you over- or under-budgeted in any areas. Maybe you averaged two client lunches a month when you’ve budgeted for four. Tighten up your budget so that you can put that money to better use.
• Plan for future costs.
  • Think through the next few months, and look for any big expenses on the horizon. Is there a big industry conference you want to attend? Do you need to pay someone to prepare your tax return? Build those into your budget in advance so that you can save a little each month rather than scrambling when it’s time to pay.

Business budgeting isn’t a one-time exercise. You’ll need to keep revising and updating your budget as your business grows and your needs change.