Show me the money: budgeting 101
Managing your small business finances is easier when you know how to work with a budget. Here's how to create one.
Updated 
3 min. read
A budget provides the framework for your small business finances. It helps you know exactly where your money is coming from and going to, which you need to know to plan for your company’s success.
Why should my small business have a budget?
A detailed budget allows you to analyze your business’s finances and plan for success. A carefully constructed budget should let you:
project monthly cash flow
attract investors
set sales goals
plan for expansion
minimize risk
reduce costs
estimate profits
identify potential financial issues
What should I include in my small business budget?
Use a spreadsheet or similar software to create your budget. It should include one column for your projected income and expenses and another column for your actual income and expenses. Comparing these figures lets you to pinpoint potential cost savings, areas of concern or even opportunities for expansion.
Some provinces have combined (harmonized) their provincial sales tax with the federal GST, meaning you don’t have to file these taxes separately. These provinces include New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island.
Your budget should also include the following components:
Sales and revenue: Project all possible sales and sources of revenue. Be realistic but err on the side of caution. If you've been in business for a while, base estimates on last year's figures and factor in potential for growth. If you're just starting out, base your projections on the research you've done on competitors or similar businesses.
Costs and expenses: Your budget should include projected costs for doing business. This could include amounts based on past expenses, quotes from suppliers or other research. These expenses are usually divided into five separate types of costs:
Fixed costs are unlikely to change regardless of how busy your business becomes. These include rent, insurance, utilities and financing costs.
Variable costs may change each month. These costs are affected by a variety of business conditions, particularly fluctuations in sales volume. Examples of variable costs include travel, overtime, freight and raw materials.
Semi-variable costs are fixed and can be affected by changes in business volume. This could include salaries, telecommunications and advertising.
One-time capital costs are large-ticket items that are purchased once and do not represent ongoing costs. These might include computers, buildings or equipment.
Depreciation refers to items like computers, vehicles and equipment that lose value over time.
Profits: Your budget should include an estimation of profits based on the mathematical formula: Profit = Sales/Revenue – Total Expenses/Costs
Projected cash flow: Use your budget to project and track your business’s cash flow, which is the amount of cash you have available each month.
Where can I find professional assistance?
Your bank, bookkeeper or accountant can help you set up your small business budget and help you know how to use it. Or if you’re a DIY-er, plenty of software programs and templates are available online to help you get started. Either way, take an active role in both creating and assessing your budget to help your business along its path to success.
These tips are neither a comprehensive review of the subject matter, nor a substitute for professional tax advice. Be sure to consult with your tax advisor to confirm the suitability of any of these strategies for your personal situation.
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