How to Create a Budget for Your Business: 4 Steps Made Simple

Creating a small business budget is an essential step that can help small business owners take control of their finances, make informed business decisions and set the stage for growth. However, creating an effective budgeting process for your business can feel overwhelming.
Luckily, business budgeting doesn’t have to be as complicated as it seems. With a simple step-by-step approach, you can create a budget to reach your business’s financial goals and set yourself up for long-term growth and success.
How to create a business budget.
Step 1. Calculate business revenue.
You can begin creating a business budget by calculating your business’s monthly revenue. Be sure to include all streams of income. Ideally, you should do this for the past 12 months. This can help you identify patterns and see how your revenue fluctuates throughout the year due to seasonal trends, market conditions and other factors.
This is a key step to creating an effective budget. By having a detailed understanding of your revenue by calendar month, you can better evaluate your business’s financial health and forecast your future income. Completing this step means you’re already half-way toward having a business budget to help you set realistic and effective business goals.
Step 2. Determine your business expenses.
To create a business budget, you’ll also need to determine your business’s expenditures. Be sure to look beyond your normal operating expenses such as rent, utilities and raw materials. Consider other business costs that could impact your budget, such as taxes or interest charges.
Your business expenses will generally fall into two categories, fixed costs and variable costs.
Fixed costs. Fixed costs are expenses that don’t change. These may include things such as:
- Rent
- Employee wages
- Insurance premiums
- Business loan repayments
Variable costs. Variable expenses can change month to month and be more difficult to plan for. These include things like:
- Shipping costs
- Utilities
- Inventory costs
- Equipment upkeep and maintenance
After you’ve calculated your expenses, you can subtract the costs from your revenue. This will help you determine your business’s profit and help you create a financial plan for the future.
Step 3. Don’t forget to set aside savings.
A good budget will allow you to set aside money for the future. Having savings set aside can help you tackle unexpected expenses and plan for future growth. Be sure your budget allocates a certain percentage of revenue to savings for:
A contingency fund. A contingency fund is essential for covering emergency costs like equipment repairs, cash flow gaps and other unexpected costs.
Future investments. You can also set aside funds to plan for future growth opportunities. This could be saving for upgraded hardware or opening a new location.
Step 4. Regularly review your budget.
Your business finances are constantly changing, and your budget should evolve with it. Regularly review your budget to ensure that it aligns with your goals. A well-thought-out budget helps you allocate resources effectively, manage cash flow and set realistic financial goals.
However, creating a budget is just the beginning. To truly stay on track, it’s essential to schedule regular reviews to monitor your performance and make adjustments as needed. During these reviews, take the time to analyze key financial statements, such as your income statement, balance sheet and cash flow statement. This financial data provides critical insights into your business’s health and highlights areas where you might need to cut costs or increase investment.
By regularly revisiting your budget and financial statements, you can adapt quickly to changes in your business environment and make informed decisions that keep you on the path to profitability.
What are some business budgeting methods?
There are many different budgeting methods that small businesses can use. Each method has its own unique advantages and disadvantages — trying a few different methods can help you find the one that works for your business. You can find many different tools such as budgeting software and free budget templates online to help you get started.
Zero-based budgeting. Zero-based budgeting is a very structured budgeting method, where you start from scratch (or “zero”) every budgeting period. Instead of carrying over expenses from the last period, you must start from the ground up to justify every expense before allocating funds. This method encourages detailed financial planning and helps ensure that every dollar spent aligns with your business goals. It can be a time-consuming method because it requires meticulous tracking and planning. However, it can help you curb overspending, make smarter financial decisions and ensure that every dollar is working to grow your business.
Incremental budgeting. Incremental budgeting is a straightforward type of budget. You’ll take the previous period’s budget and make adjustments based on things like inflation, revenue predictions and business growth. It can be less time consuming than zero-based budgeting, but it may lead you to overlook opportunities to invest or areas where you could cut back. When using this method, it’s important to review and make your adjustments carefully.
Activity-based budgeting. Activity-based budgeting can help you allocate your resources more strategically. This method focuses on the key activities that drive your business operations such as production, marketing or sales. You’ll need to identify the factors driving expenses for these activities such as labor hours or material usage. These costs will go into a budget that matches your income goals and business objectives. Activity-based budgeting can help you connect your expenses directly to what brings value to your business. Focus on activities that deliver the highest returns, and regularly review your budget to adjust for changes in operations or priorities.
Flexible budgeting. A flexible budget can be a good tool for small businesses that deal with fluctuations in revenue or costs. Unlike a static budget — a flexible budget adjusts based on your business activity levels, such as sales volume or production output. With this method, you may want to regularly compare actual performance to your budget plans to see where spending or income differs from expectations, and adjust your budget as needed.
Why is having a business budget important?
A business budget can help you build the foundation for a thriving and successful business. It provides a clear financial roadmap that makes it easier to plan, manage and grow your company.
Better decision-making. A well-organized budget plan can help you understand exactly how much you can spend on things like marketing, hiring and operations without overextending your finances. It allows you to make better decisions with confidence.
Manage cash flow. A budget can help you keep track of your incoming and outgoing payments. It can help ensure you have enough cash on hand to pay bills, employees and suppliers on time. This helps you effectively manage cash flow and avoid future cash flow gaps.
Prepare for the unexpected. Building savings into your budget can help you be prepared to handle unexpected expenses. Whether it’s an emergency one-time expense, an unexpected investment opportunity or a short-term drop in revenue, building your savings and cash reserves can help you effectively navigate without derailing your business.
Achieve your business goals. A budget helps keep your financial goals front and center by acting as a guide to help you stay on track to meet revenue, profit and growth targets. It can help ensure that your dollars are going toward achieving your business goals.
The Bottom Line
A budget can be an essential part of your business plan. By carefully managing revenues, expenses and savings you’ll be able to focus on what matters most — the sustainable success of your business. Whether you’re just starting out, or you want to refine your budgeting skills, taking a simple step-by-step approach and finding the right budgeting method can help you on your journey.
See budgeting tips from other small business owners.
“An important lesson that I have learned is the necessity of anticipating and preparing for seasonal fluctuations. Regardless of what kind of business you have and what you offer, you are going to have some amount of seasonal fluctuations. If this isn’t something you think about ahead of time, and suddenly your revenue is declining and you don’t know why, that can be cause for a bit of panic. That’s why it’s so important to do some research so that you can anticipate when this will happen, which will then also help you both financially prepare for it and also come up with strategies to make the dip less notable.”
Adam Hamilton, CEO
REI Hub
“The most important lesson I have learned working on small business budgets is the power of prioritization and flexibility. Resources are often limited, so it is crucial to focus spending on what directly drives growth or adds value. Every peso should have a clear purpose, whether it is for improving operations, marketing to attract customers, or investing in tools that save time and money.
“At the same time, flexibility is key. Unexpected expenses or opportunities will always come up, so building a buffer into the budget and being ready to adapt ensures the business can weather challenges without derailing long term goals. Ultimately, a good small business budget is not just about numbers. It is about aligning finances with strategy and being disciplined enough to make tough calls when necessary.”
Luke Beerman, Founder
Freedom Fence FL
“Over the years while drafting budgets, I have learned the importance of being realistic and flexible. A budget is more than mere number projections; it is a profound understanding of the business’s activities, cash flow, success and challenges. Unlike those that lack solid projections, realistic budgets are easier to counter when sudden expenses or market changes occur.
“Moreover, being adaptive to your budget is essential. Budgets are not set in stone. The ability to make adjustments when necessary is crucial. Increased expenses in one area mean revenues need to be reallocated in another. Being prepared to modify your budget can effectively help maintain proper control over your business’ finances”
Damien Zouaoui, Co-Founder
Oakwell Beer Spa
DISCLAIMER: This content is for informational purposes only. OnDeck and its affiliates do not provide financial, legal, tax or accounting advice.
Article Contributors

Adam Hamilton
Adam Hamilton is the CEO and co-founder of REI Hub. His intersecting interests in real estate investing and data-driven small business operations drove him to build rental property accounting software for the average person. His particular passion is de-mystifying basic bookkeeping for investors without a financial background.

Luke Beerman
Luke is the founder and president of Freedom Fence, with a bachelor’s degree in Business and Natural Science from Liberty University. Luke has over a decade worth of business leadership experience in construction and general contracting and has built thousands of fences for both residential homeowners and commercial businesses.

Damien Zouaoui
Damien Zouaoui is the co-founder of Oakwell Beer Spa, a unique wellness concept combining a day spa and taproom. With 10+ years in hospitality and tourism, he specializes in sales and marketing. Fluent in French and English, Damien holds an MBA in Business & Corporate Finance from ISTEC Paris business school.