Most people understand that they need a budget for their personal finances to stay on track and achieve their goals. But if you’re a small business owner, it’s equally important to have a budget for your business to ensure that your business is meeting its goals. In fact, a business budget might be the most essential business tool for taking your business to the next level. Why Does Your Business Need A Budget? Having a budget for your business helps you manage your expenses by carefully planning the areas where you expect outflows. This can help you reduce costs and increase your profitability. A budget will help your business set goals for growth and profitability. By having these metrics in mind throughout the year, you are more likely to achieve your goals. Note that a budget can also help you set reasonable goals by identifying areas where your company can either increase revenue or cut expenses to achieve your goals. A carefully created budget will ensure that you know your company’s financial health at all times. By being aware of your company’s financial position, you’ll be able to make better decisions about potential investments and capital expenditures. What Are The Key Components Of A Company Budget? Although every company’s budget will look different, there are some key components that should be included. Revenue Revenue should be broken down into each potential source of income. Depending on the complexity of your business, you may want to list each product, department, or service type. You should consider expected revenue growth (or decline) in each area. Expenses Expenses include the cost of goods sold, operating expenses, and financing costs (such as interest expense). The budget should take into account the variability of these expenses, and expenses that are variable should be adjusted to match the projected revenue growth. Profit You should include the projected income for each time period (often monthly) in the budget. This should be calculated before non-cash expenses such as depreciation and amortization, and after. These two profit calculations will help you figure out how much cash will be available at the end of the month and your taxable net income. Capital Expenditures If your company will be making capital investments during the year, these investments should be included in your budget. By seeing these large expenses in advance, you can plan for down payments or ensure that you will have the cash flow available for the financing payments. Contingency Funds A budget should track how much money you expect to have available at the end of each month. This will help you identify if you are in danger of running out of money or if you will have excess funds that you can distribute to owners or use for future investments. Free Business Budget Templates Fortunately, as you’re trying to get serious about budgeting for your business, a host of tools are readily available online to help you get started. Below, we’ve found several business budget templates that you may find useful. Business Operating Budget A business operating budget is a financial plan that outlines a company's expected revenue and expenses over a specific period. It is typically created on an annual basis, but can also be created for shorter periods such as a quarter or a month. A business operating budget can be used in several scenarios including planning for the future, monitoring performance, and decision-making. To get started, check out this Google Sheet business operating budget template, which can be copied and adjusted for your business needs. (Note: this template includes many common expense categories such as rent, payroll, and insurance, but you will need to add any additional categories that are important to your operations.) Cash Flow Budget A business cash flow budget is a financial plan that outlines a company's expected cash inflows and outflows over a specific period. It is designed to help a company manage its cash flow effectively by identifying potential cash shortages or surpluses in advance. Cash flow budget is essential when planning for large purchases or if you are worried about potential cash shortfalls. To get started, try this cash flow budget template to determine whether your company is expecting positive or negative cash flow for the coming year. You may want to carefully consider what time period you use for your cash flow budget, since some businesses may need to make daily or weekly budgets to ensure they have sufficient cash on hand. Production Budget A business production budget is a financial plan that outlines a company's expected production output over a specific period. It is designed to help a company plan its production activities and manage its resources effectively. A production budget should be used when doing inventory planning, allocating resources, and forecasting revenue. You should use this type of budget if your income varies on production output and your production varies throughout the year. It’s also appropriate for companies that have seasonality that affects their revenue (and related expenses) at various times during the year. How To Use A Business Budget A budget does not need to be set in stone. You can make updates throughout the year as you get additional information. Most importantly, be sure to revisit your business budget often and reevaluate it as new information comes in. If you wait until the end of the year to check your actual to expected, you will not have sufficient time to correct for any revenue shortfalls or spending overages. On the other hand, by checking on your budget throughout the year, you will have ample time to adjust and make changes along the way.