Why Every Business Needs a Budget–Including Yours
Whether you’re making $10K or $10M (or anywhere in-between), an S-Corp, LLC, or sole proprietorship—your business needs a budget.
Budgeting is arguably one of the most important things you can do for your business—it helps you judge the health of your business based on real facts and data, not just the number in your account right now.
More often than not, the money in your bank account isn’t yours. It’s reserved for taxes, paying your team, or buying inventory. A budget tells you when and where your money goes before you put it somewhere else (and end up wondering what happened when that one annual subscription hits before you’re ready).
At Your Numbers Gal, we create our budget in Q4 and do the same for our CFO clients, but even if you’re not starting in Q1, having a budget in place late is better than not having one at all.
Here’s why every business needs a budget, what a budget is, and tips for creating one for your business this year:
What It Means to Budget For Your Business
A budget is an estimate of income and expenditure for a set period of time. To put it simply: it’s when you give your money a job for the next week, month, or year(s).
Most business owners make decisions based on the balance they see in their bank account at the moment. A budget gives you more than a glimpse or guess, it gives you a plan you can trust and the confidence to act on it.
There’s a common misconception that small businesses—specifically, creatives and service providers—can’t budget because of the unpredictability in booking clients, busy seasons, and slow seasons.
And it’s true, your business changes—and fast. Clients book, CRMs announce price increases, you launch a digital product, a group program, or bring on a team member or contractor and it can happen over a weekend. That’s the beauty of owning your own business.
But your business not having the same day-to-day as the average 9-5 doesn’t mean you can’t budget (or stick to one).
Your budget as a small business is flexible, it’s meant to be reviewed and updated quarterly, being revisited with each season throughout the year with each year providing more data and insight for the next.
P.S. Budgeting for your business isn’t like setting aside $100 for groceries–it’s less “here’s how much you can spend on office supplies this year” and more about giving every dollar a job so when it hits your bank account, you know exactly where it’s going and what it’s doing to grow your profit and peace.
Budgeting And Cash Flow Management
Cash flow is the net amount of cash (and equivalent) moving in and out of your business, it represents your liquidity and ability to pay your expenses. Cash flow management is the process of tracking, analyzing and optimizing your cash flow–aka how you make sure you have enough money to cover your expenses in the short-term.
Your budget acts as a roadmap for your cash flow–it allows you to predict highs and lows, excess and shortages and shows when (and where) you’re overspending before it impacts your business.
It also shows when and that you’re prepared to invest in something or someone.
If You Don’t Have a Budget, Here’s Where to Start
Start by assigning percentages of your income to big picture categories (if you’re tracking your profit and loss—or have a bookkeeper who does it for you, it will help with this!). Think:
Operating expenses
Tax savings
Owner’s pay
Emergency fund
Don’t start with 32 different categories—you WILL get overwhelmed and you WON’T want to keep up with it.
The exact percentages will depend on your business structure (LLC vs. S-Corp), what you’re currently doing in your business, and the type of business you run, but for the most part as a service provider with a team, you can usually aim to pay yourself (owner’s pay) ~ 40% of your revenue, spend no more than 25-40% of revenue on your team and operating expenses, and tax savings should include your income tax (based on your tax bracket) and the 15.3% self-employment tax.
A budget is only as good as the data behind it. If your books aren't in order, start there. If they are but the numbers feel overwhelming, working with a bookkeeper can turn that information into a plan that actually makes sense for your business.
Ready to get started? Apply for monthly bookkeeping support for your LLC or S-Corp here.
