4 steps to creating a business budget

If cash is king, then a well written budget must surely be the queen that rules alongside it.

A comprehensive budget is one of the most invaluable tools in managing your small business finance - without one, you will struggle to keep track of your income and expenses and your cash flow can suffer as a result.

What are the key steps to take when drafting a budget for your small business?

1. Determine your fixed costs 

Fixed costs form the bulk of your business's outgoing expenses and can have a huge impact on its cash flow finance, so it's important to make sure you've got each individual cost covered.

At a bare minimum, your cash flow should be strong enough to cover these fixed costs on an ongoing basis in order for your business to survive.

2. Add in your variables

Variable costs are flexible and shift according to external factors, such as your business's sales volumes. These include costs such as raw materials and inventory.

It is vitally important that your business has enough room in its cash flow to account for fluctuations in variable costs, as demand for sales can trough and peak seasonally, for example.

3. Forecast your income

The income section of your budget requires extra careful calculation as it is a prediction based on your sales history and expected revenue.

Make sure you add in extra income sources as well and not just the figures you forecast from sales.

4. Review it regularly

The important thing to remember is that a budget is a living document, one that needs constant monitoring and updating if it is to be of any use to your business.

How often you do it is up to you, but make sure you are regularly checking forecasted figures against actual results to see if your budget is on track or whether it needs any tweaking.

Earlypay has supported Australian SMEs with fast and flexible alternative funding solutions for more than 20 years. Our invoice finance and equipment finance and trade finance products allow business owners to proactively manage their cash flow, freeing up your working capital for investing in growth. To chat about whether our solutions could be right for your business, call us on 1300 760 205.