Business budget planning can fill some business owners with apprehension. If you haven’t paid attention to your finances over the past year, you might be afraid of what you’ll uncover if you do a little digging. But that’s exactly the point of budget planning. You can’t run a successful business for very long if you don’t have your accounts in order. And even if it means a headache for a few days in the short term, over the long haul, having a budget plan will give you peace of mind. While you can’t know for sure what the coming year will bring, your budget will set a baseline from which you can make decisions and compare your actual expenses and revenue against.

Here are five tips that can make your budget planning easier this coming year:

1. Work with a financial professional

If you’re a small business owner, it’s tempting to do everything yourself. That means mastering sales, operations, strategy, marketing, finance, innovation, and more. Being a jack of all trades comes with some advantages as an entrepreneur, but if you plan to grow your business, you’re going to need some help. Hiring a financial professional can ease some of your burden, and the added expertise they bring can be a significant advantage.

A finance expert will know your best options for creating a budget and will be able to ask you all of the right questions about your sales trends, expenses, and decision-making framework. They’ll look at your monthly income, monthly expenses, financial goals, and how much money you need in your emergency fund. Usually, they will have a budget worksheet that they’ll bring to your first meeting, even if it’s just a simple excel sheet. They will also help you define your savings goals and set a monthly budget, if you haven’t already done that. They will also be able to plan for healthcare expenses, insurance, and even paying off credit card debt, if these are things you need to do.

2. Use Free Templates

If you decide not to hire a financial professional, it doesn’t mean you have to start from scratch. There are plenty of free budget planner templates available online. You can even find resources that help with budget planning for specific industries, like restaurants and software sales.

This can be helpful because every industry tends to have specific nuances that can complicate your accounting. For example, an e-commerce company might have to account for shipping, warehousing, and sales taxes across multiple states, while a gym might have to account for depreciation on equipment, membership turnover rates, and janitorial services. Or if you’re running a restaurant, you’ll have to think about staffing, alcohol licenses and food inspections, and the fluctuating costs of fresh ingredients.

Using an industry-specific template can help you keep track of all of the nuances that your business experiences, that way you don’t overlook any common or variable expenses as you do your budget planning.

3. Use Historical Data

Unless you’re budget planning for a brand-new business, you should have access to historical data that can help you with your strategic planning. For example, your accounting platform should provide a clear overview of your monthly income and expenses, often with a simple visualization that makes it easy to understand. Pay attention to your cash flow from the previous fiscal year. Look at your balance sheets, expense reports, profit-loss statements, payroll data, inventory, accounts payable, and one-off expenses.

The next step is to map out where the expenses and income occurred. You may have seasonal trends, where revenue or expenses increase in summer or during the holidays, and then slow down during a different period. Strategic planning means having the know how to create a budget plan that takes these things into account. The best way to do this is to start with your actual expenses and income from the previous year.

4. Be Strategic

While it can be helpful to build a budget based on your past year’s performance, you should also modify it to be strategic. Identify your business and financial goals for the next year and then work backward to identify what it is going to take to accomplish those goals. You may want to increase your marketing spend, open a new location, hire more salespeople, or innovate some new products. Taking control of your money means factoring your growth plans into your budget planning.

Of course, business doesn’t always go according to plan. You will want to make sure to give yourself a bit of financial room to maneuver when unexpected events occur. So as you outline the ideal future for your business, make sure that you factor in an emergency fund.

5. Make It a Five-Year Plan

Once you have your annual budget in place, it’s time to start thinking bigger. Many small business owners' overestimates what they can do in the short term, and underestimate what they can do in the long term. As you think through your business strategy, don’t stop with the next fiscal year. Plan for the next three to five years, as you may realize that you need to take larger risks in the next twelve months in order to get your business on track with your goals.

Your five-year plan won’t be as detailed as your one-year plan, but it should include things like your expansion plan, your equipment and technology needs, industry trends, and what your competition is doing.

As you look at your long term plan, you may find that scaling your business requires financing. Knowing this up front can help you make your budget planning more effective, which will increase your likelihood of achieving your goals.

Small business financing can be used for a variety of purposes. For example, equipment financing can help you make a large equipment purchase without using up your cash reserve, working capital loans can help you meet short term business goals, and term loans can help you make large purchases, like those needed to expand your business.

With budget planning and a long term business plan, you can be proactive about investing in your company and getting the financing you need to achieve your goals.

Of course, if you already have loans that you’re making payments on, you’ll want to assess your profit-debt ratio and any interest accruing on small business loans.

Business Budgets are tools

In the end, remember that your business budget is there to serve you and your company. Your financial plan isn’t supposed to be something overly complicated that overwhelms you—with just a little work, it should make your life a little bit easier. You may find that you need to cut back on expenses to maintain cash flow, or that you have a little extra than you initially thought, and you can give out bonuses, pay down debt, invest in growth, or take additional profit.

FAQs about business budget planning

How often should I update my business budget?

You should plan to review your budget quarterly and do major updates annually.

What percentage of my revenue should I allocate to marketing?

This will differ depending on your industry, but you should plan to allocate at least 10-15% of your budget to marketing.

How do I create a budget for a new business?

If you’re starting a new business, the best way to create a budget is to start with a template from your industry, then modify it based on your best assumptions about your own company.

What are the most common budgeting mistakes businesses make?

The most common mistakes businesses make are underestimating expenses, overestimating revenue, and not setting enough aside for taxes and emergencies.

Do I need special software to make a business budget?

No special software is needed, but it can help. While many small businesses make do using Excel, for a minimal monthly or annual fee, you can streamline your bookkeeping and simplify your budget process all at the same time.

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