89% of startups in the UK survive their first year, according to government statistics, but only 42.4% of new companies survive for five years or longer. 

That raises the question, though: What distinguishes successful companies from failing ones? A recurring topic is the business budget. 

According to a study of more than 80 failed startups, more than 50% of the founders did not have a defined budget for their company when they first launched. 

Starting a business from the ground up will inevitably be expensive. When your business is first starting and getting ready to take off, you probably want to spend as much money as possible.

However, without a well-thought-out budget in place, it’s simple to overspend or assume too soon that you’ll generate enough revenue after launch to cover the outlay of funds.

This post will explain business budgeting, explain why it’s crucial for businesses of all sizes, but especially for startups, and provide you with helpful tips for creating a successful budget for your venture.

A business budget: what is it?

A small business budget is a financial plan that gives companies important data about their assets, earnings, and expenses. Budgets give small business owners an estimate of their expected income and outgoings over a given time frame, like a month or a year. They also serve as a helping hand in deciding where and how to spend your money. 

A budget serves the following three purposes:

  • Project your income. You can project how much money your company will bring in through sales, profit, and revenue by creating a budget.
  • Make a budget for your spending. Using a budget helps you give your business expenses some direction so that every dollar you spend has a good reason.
  • Be responsible for yourself. Having a budget enables you to assess whether you’re truly meeting your goals by comparing your spending plan to actual spending.

Eight steps to a successful business budget

A strong budget planning for your business is both flexible and detailed. It ought to function as a dynamic document that you regularly review and modify as your company expands and changes. These eight steps will assist you in developing a successful budget for your own company.

Examine expenses

You need to do some research on your company’s operating costs before you begin creating a budget. Having a thorough understanding of your expenses provides you with the foundational understanding required to create a budget that works.

Your objectives will be compromised if you make a rough budget and then find out that you require more funds for your business operations. Your budget should be set up so that as your company grows, you can raise sales and make enough money to cover your rising costs.

You should account for fixed, variable, one-time, and unforeseen expenses in your budget. Rent, mortgages, salaries, internet, bookkeeping services, and insurance are a few instances of fixed expenses. Labor commissions and cost of goods sold are two instances of variable costs.

Overestimating the expenses is not too harmful because you will require enough money to cover your future expenses. Start-up expenses need to be taken into account if your company is brand-new. 

Haggle over prices with vendors

Businesses that have been operating for more than a year and rely on suppliers to sell their products will find this step helpful. Speak with your suppliers to see if you can negotiate lower prices for the supplies, goods, or services you require before you begin creating your annual budget.

You can build reliable relationships with your suppliers through negotiations. When there is little money coming in, this will be useful. You may, for instance, run a seasonal business. You can compensate your suppliers for periods when you are unable to make payments by giving them advance payments when you have enough cash saved up. Our primary objective is to identify effective methods.

Calculate your earnings

Overestimating revenue and taking on additional debt to cover operating expenses has led to the demise of numerous businesses in the past. This negates the entire intent behind making a budget. Companies need to monitor their revenue on a monthly, quarterly, and annual basis.

The revenue figures from the prior year can serve as a point of reference for the ones to come. It’s critical to depend only on this empirical information. This will assist you in setting team goals that are doable and eventually result in business growth.

Recognize your gross profit margin

The cash your company keeps outside the end of the period after all costs have been paid out is known as gross profit margin. It offers a description of the state of your company’s financial statements. The following is an example of the value, of obtaining knowledge about this parameter being relevant when budgeting.

Let’s say your company brought in $5,000,000, but you still have an obligation to pay off. When your costs surpass your wage at the conclusion of the year, it’s not a great sign for a company that’s expanding. This indicates that you just ought to decide which costs are not making a difference in commerce at all and cut them out.

The most effective method for doing this would be to make a list of every material’s cost of goods sold and subtract it from the total sales revenue. To get a true picture of how your company is doing and make cost and profit reductions, you need this information.

Cash flow for the project

Cash flow is made up of two parts: vendor and customer payments. For your business to continue making money, these two factors must be in balance.

It’s critical to have flexible payment terms and the capacity to accept payments via common payment channels if you want to make every effort to guarantee prompt customer payments. Regretfully, you will have to deal with clients who might not abide by the rules as written. 

Giving consumers a grace period and establishing stringent policies for late payments are two ways you can promote payment. In addition, you need to budget a certain amount of money for “bad debt” in case the client doesn’t make payment.

Knowing your cash flow inflows and outflows will help you set aside money for employee salaries and travel costs. Additionally, you can set aside some cash to cover your fixed vendor costs. If you have any money left over, you can use it for business projects like investing in new equipment or professional development.

Take industry and seasonal trends into account.

It’s impractical to think that you will meet your projections and accomplish every business objective each month. In an annual cycle, your company may experience a few months of slow sales followed by months of growth. You will need to use your money wisely because of industry trends and seasonal fluctuations, which could put your company in danger of going out of business during slow times.

Obtain information about the times when your company performs better to overcome this difficulty when developing a budget. The goal ought to be to make enough money during the busiest months to keep the company going during the slow periods.

Assume, for illustration purposes, that you are the proprietor of a winter apparel company. The majority of your income is generated during that time because your products are in high demand only during that season. You can use the remaining funds to market to particular target audiences, such as hikers or tourists, and to sustain the business for the remainder of the year. This will assist you in determining how well your products sell off-season, how much money to budget for, and how much to save during your busiest times.

Establish budgetary objectives

It takes more than just adding up your expenses and deducting them from your income to create a budget. Your business’s success is largely dependent on how prudently you manage your finances.  With the help of goals, you can monitor whether your money is being spent wisely and prevent unnecessary expenses.

For instance, it might be time to reduce expenses if you are paying for stationery that isn’t being used for marketing or operational purposes. You could use this money more wisely to fund your marketing initiatives, which would increase leads and sales. Choose the types of costs that will ultimately contribute to your business and make related investments.

Compile everything

The next step after collecting the data from the first two stages is to prepare your budget for enforcing the desired allocation. You will have a clearer picture of what is left over namely your net balance after subtracting your fixed and variable expenses from the income you earned. Do your best to be prepared for other one-time unplanned costs. Once you have identified your short- and long-term objectives, it is possible for you to know what best way the funds should be used.


In this case, budgeting does much to ensure an essential process for small businesses since it allows these business owners to estimate their funds and assign them to different services of the firm. When producing a budget you know and see exactly how many pounds, dollars, or euros you can spend in order to fulfill your company’s goals; let’s not forget about unforeseen situations being quite inevitable so having cash on hand is extremely important. 

The variable nature of most small businesses work means that it may be difficult to do the annual projection because the early stages of an organization are unpredictable. In such cases, you can have smaller budget estimates that you could continually cognitively evaluate to make changes over a couple of or three months. Still, more control is achieved from the process when an accounting system comes into play. You can establish attainable goals for your corporation and manage tasks such as cash flow projection, costing, or any other task.