Originally published in March 2023. Last updated on November 21, 2024.
Do you struggle with consistent cash flow or have trouble setting prices that cover your costs? Then it might be time to get more hands-on with your business finances.
A small business budget calculates how much money you have coming in and going out, informing your spending and pricing strategy. This helps you identify when and how you can afford to grow and whether you need to make adjustments before small oversights become major problems.
Follow these steps to create a budget for your small business and learn tips for keeping it in check.
Here’s how to create a small business budget:
What is a business budget?
A business budget is a financial plan that outlines your income and expenses over a specific period (weekly, monthly, quarterly, annually, etc.).
Small business owners use their budget to allocate resources to have better cash flow, prepare for unexpected costs, and plan for growth.
It can also be used to inform business goals and monitor performance, so you can make realistic plans for how to scale your business.
Types of business budgets
As a small business owner, there are different budgets to choose from based on your needs and financial goals. The most popular budgets are:
- Startup budget: This helps you plan for the startup costs associated with starting a service business, like your business license and equipment. Budget for at least $1,100, and possibly more, depending on your industry.
- Monthly budget: Your monthly operating budget tells you what you’ll earn and how much you can spend during that time. Monthly tracking shows you how well you’re sticking to your budget and helps you make adjustments as you go.
- Quarterly budget: This is a budget for each quarter of your business. It can vary widely, based on when your busy season is, which helps you predict seasonal trends.
- Annual budget: This is your master budget for the entire year. Your actual revenue and expenses may look different at the end, and that’s okay. Use that data to plan for next year’s budget.
- Marketing budget: Your marketing strategy needs money for ad space, whether it’s Google Local Services Ads, door hangers, or postcard marketing. Plan your marketing spend ahead of time and divide it among the different tactics you’re investing in.
1. Add up your revenue
Depending on the period you want to create a budget for, add up your monthly, quarterly, or annual revenue. This includes every dollar your business earns before taxes, expenses, and profit.
Revenue specifically comes from clients, like the money you make from mowing a lawn or selling fertilizer.
READ MORE: Revenue vs. profit: what’s the difference?
Here’s a simple equation for calculating revenue:
Total revenue = total money received for goods or services + additional fees – discounts
Calculating your total revenue tells you how much money is available so you don’t overspend.
Reviewing quarterly and monthly revenue also shows you seasonal increases or decreases so you can budget for those periods better next year.
When tracking and calculating revenue, note each source (like individual clients or commercial contracts) and when you receive payments.
That way, you’ll be able to determine which jobs and services are the most profitable and whether there are opportunities for you to adjust your pricing strategy by offering bundles or tiered options.
FREE TOOL: Try out Jobber’s service pricing calculator
2. Identify fixed and variable expenses
Next, divide your total operating costs (including overhead) into fixed and variable expenses.
Fixed expenses are consistent costs you pay every week, month, or year, like:
- Office rent
- Equipment loans
- Phone and internet bills
- Small business insurance
- Professional services, like a lawyer or accountant
- Employee wages and benefits
- Field service management software
Total how much you spend on fixed expenses for a specific amount of time then multiply by it by your budget period to get a projected budget.
For example, if you calculate a month’s worth of fixed costs to plan an annual budget, multiply that number by 12.
Variable expenses fluctuate based on how much you use them, like:
- Office supplies
- Utility bills
- Gas
- Job materials and supplies
- Marketing campaigns
- Bad debts
- Income tax
Use the total of your variable expenses for a specific period to predict how much you’ll need. For example, if you’re trying to plan a budget for your off-season, total variable costs during a previous week, month, or year with similar expenses and multiply it by your budget period.
When you’re done, add your fixed and variable costs together to get your total expenses.
Here’s what that equation looks like:
Total expenses = variable costs + fixed costs
Pro Tip: Use a business expense tracker like Jobber to track, calculate, and document all your costs to make small business budgeting easier.
3. Calculate your net profit
In a small business, profit can be broken into two types: gross and net.
Net profit is how much you have left after all other expenses have been deducted, like fixed and variable costs and taxes.
Gross profit is how much you have left after job costs, like materials, labor, and supplies are subtracted. This is also referred to as the cost of goods sold (COGS).
To calculate it, subtract your total job cost (COGS) from your revenue using our free profit margin calculator or this equation:
Gross profit = total revenue – total COGS
Then, add your numbers to a profit and loss statement to show your net profit or net income after all expenses, including income tax, have been deducted.
Net profit = income – total expenses (including COGS, operating costs, and taxes)
Let’s use these numbers as an example:
- Total revenue: $224,565
- Total expenses: $195,816
- Profit: $28,749
- Tax: $7,187.25
That means our net profit would be $28,749 – $7,187.25, leaving us with $21,561.75.
Ideally, you’ll end up with positive net income, meaning you made more than you spent. But don’t worry if you have a negative number instead. It just means you have room to increase revenue and reduce your expenses.
The number you have left at the end (your net profit) tells you how much you have to work with. If it’s positive, it means you can use your budget to grow your business, add to your emergency fund, or stay afloat in the off-season.
If the number is negative, it means you need to focus on increasing revenue and reducing expenses before you have excess funds to work with.
4. Monitor and improve cash flow
Now that you know how to calculate a small business budget, you need to learn how to use it.
One of the best ways to put it to use is to keep an eye on cash flow so you can make adjustments when needed.
When you have a surplus, it means times are good, and you’re turning a profit. But when you’re in the negative, it’s important to take steps to improve cash flow before it impacts your ability to cover costs.
To balance it out, try:
- Renegotiating supplier contracts, asking for bulk discounts, and shopping around for deals
- Bundling your insurance coverage into a single policy
- Downsizing your office space or switching to remote
- Selling any equipment or materials you aren’t using
- Focusing marketing efforts on areas where you see the most success
If you’ve already cut down on expenses but still need more wiggle room, consider:
- Raising your prices
- Asking clients for deposits upfront
- Increasing revenue from existing clients
- Offering early payment discounts
- Using a third-party lender to provide financing options
- Sending payment reminders
- Following up on outstanding invoices
- Firing clients who don’t pay their bills to make room for new ones
Using reporting software like Jobber is also a good way to stay on top of your budget and monitor cash flow.
How to use your small business budget
When you have enough of a budget to start using it to grow your business, it’s important not to spend it all in one place. To scale effectively and efficiently, here’s how your budget should break down:
- Marketing: 5-10%
- Payroll: 25-35%
- Operating costs: 20-30%
- Profit margin: 10-20%
- Other expenses (materials, supplies, licenses, etc.): 15-25%
Keep in mind that these numbers vary between industries, services, and even service areas. Allocate your budget based on your goals, the size of your business, and your competition.
Best practices for creating a small business budget
To really maximize your budget potential, use these budgeting tips to keep it effective, efficient, and economical.
1. Separate business and personal finances
Open a business bank account to separate your professional and personal finances. This will make tracking payments and expenses much easier and save you a major headache come tax time.
2. Build up an emergency fund
Unexpected costs happen. But you don’t need to scramble to make ends meet when they do. Saving for a rainy day will ensure you have the funds you need to pay for vehicle repairs, price increases, or mistakes on the job, like damaging a client’s property.
Aim for 3–6 months’ worth of operating expenses to give yourself a nice cushion for any tough times ahead.
3. Plan ahead for seasonality
If you work in an industry with an off-season, like snow removal or lawn care, use your business budget to plan ahead. In your busy months, set aside money to cover your expenses when jobs are scarce. That way, you won’t struggle to make ends meet while you wait for work to pick back up.
We run seasonal businesses, so we know there’ll be peak months that we are just busting at the seams with work. So it’s a perfect time to put a little more meat on the bone. Raise your prices a little bit.
4. Price for profit
Set prices with a profit margin and markup in mind so you make money on every job.
If your prices are already as high as you feel comfortable making them, consider where you can cut costs to hit the profit margin you set.
FREE TOOL: Reach your profit goals faster with Jobber’s free profit margin calculator
Let’s say you’ve got your whole budget for the year laid out. You want to do a million dollars a year and you want to profit 20%, so $200,000. 1% of a million dollars is a big number—it’s a thousand dollars.
It helps you realize that if I just shave a little bit off here, I don’t have to shave 10%. Just one point here, one point there, one point there, and suddenly, I have a whole lot more money than I did.
5. Stick to your budget
If you calculate a budget, stick to it. Overspending will eat away at your profit, and while it’s normal to be in the red from time to time, consistent debt will impact you long-term.
6. Use a budgeting tool to make it easier
Manually calculating your budget each time you need to review it is time-consuming and leaves you open to human error.
Use reporting software and AI tools like Jobber Copilot to manage spending, track payments, and gain personalized data insights that help you make important financial decisions.
That way, you can focus on generating healthy and consistent profits you can use to fuel long-term growth.