Business Budgeting for Beginners

Setting up a business budget is the first step you can take towards taking financial control of your business money.

I know just the word ‘budget’ can feel restrictive.

And at a beginner to budgeting then that can be how it feels. Especially if you are just used to buying what you want when you want.

But done correctly and once you start to see the results, it will actually make you feel financially free and eliminate confusion when it comes to your business spending decisions.

Why Your Business Needs a Budget

If you keep running out of money in your business bank account, don’t have an emergency fund or struggle to pay your tax bills, then you need a business budget.

If you have enough money for coffees but never enough to pay your suppliers on time, then you definitely need one!

Budgeting is all about choosing what you spend your income on and setting reasonable estimates for all your expenses.

What is a Business Budget

A business budget is a way of managing your incomes and tracking your spending for just your business over a specified timeframe.

It’s a financial plan that will stop you from overspending, help you build an emergency fund and stop you wasting your hard-earned money.

What to Include in Your Business Budget

You’ll need to include all your business income and expenses. Don’t include any of your personal spending or other income you may have.

It’ll be confusing.

If you want to manage your personal spending (and I recommend you do) set up a separate personal budget.

Open a Separate Business Bank Account

If you haven’t already done so, open up a separate business bank account.

You’ll be able to track your business spending much more clearly and it will make sticking your budget much easier.

In addition, open up an instant access deposit account so you can transfer money to that to build an emergency fund and tax fund (more on that later).

Step-by-Step Guide to Budgeting For Beginners

Let’s get started.

To make things simple we will just do one month.

But as you get more confident, start to extend the number of months you are budgeting to give you a clearer view of the future.

Step 1: Calculate Your Income

When you’re self-employed I know this may not be straightforward because your income may be irregular.

You’ll have to use some common sense assumptions and look at your earnings in previous months so you can make a reasonable estimate.

Start by taking your bank statements and noting down what you have earned over the last six months.

Check for a pattern and identify regular income. Depending on how many clients you have, you could do that on a client-by-client basis.

Alternatively, do it by income stream.

Step 2: Write Down Your Fixed Costs

There are business expenses that you need to pay for when you’re self-employed, just so you can deliver your work.

These are fixed costs.

That’s things like:

  • Subscriptions for essential software;
  • Travel costs for clients you need to see on-site;
  • Web Hosting;
  • Mobile phone.

Again, go back through your bank statements to find these costs and have a good think about all the things you are paying for and note them down in your business budget template.

Step 3: Write Down Your Variable Costs

Variable costs just means non-essential spending.

They’re ‘nice to have’ things but aren’t actually essential to your business.

That’s bits like:

  • Premium subscriptions;
  • Coffees;
  • Unnecessary lunches;
  • Taxis, rather than public transport.

Write all those down, grouping them together if that is easy for you to do. Or go line-by-line to make it easy for you to work out.

Step 4: Create a Tax Fund

When you are self-employed, everything you are paid is untaxed.

So setting aside a tax fund each time you get paid, it quite honestly the simplest way you can budget for your tax bill.

It is aggressive. But I recommend that you put away a percentage of your money every time you get paid.

No doubt your tax bill, in reality, will be lower because you pay tax on your business profits, not turnover. And you’re entitled to deductions and tax allowances that will reduce your tax bill further.

But it’s my favourite way to do it and you’ll probably end up with a bit of money left over when you pay your taxes!

So it’s a nice way to save some extra money.

If you pay tax at 20%, then budget to set aside 20% of your estimated monthly income.

Step 5: Create an Emergency Fund

Just like in your personal life, in business things happen.

So setting aside money for unexpected costs or times when your income is lower should be an essential part of your business budget.

Many say that you should have 12 months of income in a deposit account in case you can’t work for some reason.

That’s a big target if you have nothing!

So break it down to a small amount and build it up over time.

Wrapping Up

Business budgeting can feel restrictive in the beginning and it can be tough.

Please don’t give up!

I promise it will be worthwhile and you’ll soon have a sense of satisfaction as you watch you emergency fund build, know you can pay your tax bill and stop wasting money.

It’ll soon be a habit you love, not a burden.


What is the Hardest Part of Business Budgeting?

When you’re self-employed, no doubt the hardest part of budgeting is going to be estimating your business income.

It can fluctuate. Or a client could pay you late. And that could ruin your budget plans.

Creating an emergency fund will help smooth the fluctuations. Because you can draw money from it if you have a cashflow problem.

What Are the Consequences of Poor Budgeting?

Take your time when you prepare your business budget, a poorly constructed budget will make you feel restricted, confuse you when it comes to making financial decisions and not help you to achieve your financial goals.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.