What Is a Business Budget?

A business budget is a comprehensive budget that seeks to establish the most practical appropriation based on a company’s needs and financial objectives. It encompasses basic variables such as a business or company’s income, expenses and other relevant financial data. 

According to an article by Zoho, around 61% of small businesses do not or have not created a formal budget. The same article also reveals that there are six types of budgets. These are master budget, operating budget, cash budget, financial budget, labor budget and static budget.     

Sample Business Costs

Running a business can entail multiple costs or expenses. Of course, it would depend on the size of the business and the nature of its operations. A startup or small business’ expenses cannot be compared with that of a big or established conglomerate. The following examples describe just some of these basic and common business expenses.

Manpower Costs. A business cannot survive without people to run it. A key element in any organization is manpower. Manpower is essentially the lifeblood of an organization. Even if machines and technology have assumed the role or replaced human labor on many levels, the fact still remains that people are still the driving force even behind the technology. An important business expense that is unavoidable is manpower or employee-related costs. This not only pertains to wages or salary, but also the different benefits and other requirements awarded to each employee. This includes the cost of training and investment in the professional development and growth of a company’s employees. Each new hire or recruit costs the company. The more employees there are, the more funds are obviously needed to pay these people for their labor. Resources and Material Costs. Another basic need for running a business is resources or capital. A business would obviously need external resources or raw material to produce or sell whatever service or product they intend to market. Depending on the nature of the business, a company can be involved in the manufacturing, production, distribution or retail aspect of a business. But all these areas still require some form of resources. In many cases, companies outsource their materials either because they do not have it or it is more convenient to do so. Thus, business expenses also include procurement and supplier management. These vendor partnerships require payment for the services rendered. Whether it is raw material, services or labor, a business would need to allot and spend a considerable amount just to acquire these. Operating Costs. A basic expense needed for a business to continue running is operating costs. These are often fixed and non-negotiable. The average business or company is faced with several operating costs such as rent and utilities. Just like how an individual pays his or her monthly dues in order to continue living in a rented apartment or flat, the same also applies to organizations and business establishments. Unless the office space is owned and operated by the organization itself, many companies lease or purchase office space. In addition to rent, regular expenses also include electricity, water and internet connection bills. These expenses are essential and if a company fails to pay their dues, it could disrupt or even halt business operations altogether. Since the beginning of the worldwide pandemic, many traditional businesses have been able to save a considerable amount since shifting to work from home arrangements. Despite the huge losses brought about by the health crisis, many establishments were still able to economize on basic utilities like electricity. Marketing Costs. For a lot of for-profit organizations (and even some non-profit groups), marketing and advertising costs apply. In most cases, spending for promotional reasons is not even optional but it has become a basic requirement. Whether to increase visibility or generate awareness and sales, marketing costs can come in various forms and sizes. From social media marketing to billboard advertising to above the line collateral, marketing expenses can comprise a large chunk of an organization’s budget. However, how much is actually spent on marketing would still greatly depend on the organization’s direction and dependence on marketing. With this, it is crucial for any organization or company to carefully plan and weigh each option and benefit of each marketing endeavor.

Elements of a Business Budget

A basic budget ought to contain a couple of key elements. It is important to break down each element specifically in your budget worksheet. The following examples offer a thorough discussion and analysis of some of the basic elements in a business budget. 

Revenue. The first component in a basic business budget is the revenue or income. You cannot continue operating a business without sufficient revenue or profit. Yes, even if it is possible to take out loans to fund your business, it can only take you so far. There must be actual returns or profit for you to earn and also pay back your debts. For many traditional organizations, the bottom line is what matters at the end of the day. How much is the company earning on a weekly, monthly, quarterly, or annual basis? How big or small are the profit margins? What can be done to increase sales and revenue? These are the typical questions businesses face on a regular basis. A business budget needs an accurate accounting of income and revenue because this moderates and determines a company’s spending or expenses. Expenses. Another key element in a business budget is expenses. You cannot separate income from expenses. Running or operating any form of business always entails some form of cost. Some establishments have higher costs than others. Almost all companies have to contend with universal expenses such as labor costs and utility bills. To craft a comprehensive and sustainable business budget, you need to have an exact breakdown or accounting of all your company’s expenses- no matter how small or seemingly insignificant. The previous section already details some of these major expenses. From manpower to marketing to operational costs, most expenses are necessary but you also need to know how to prioritize each cost objectively.Actual Spending. To budget is one thing, but the actual spending is a whole other thing. The premise of crafting a budget is rooted in planning and preparation. It is essentially a plan or guide so as to avoid excessive and unnecessary spending. For a business, a budget is helpful in financial forecasting or projection. But sometimes, the actual amount or cost may vary due to whatever reason. In this case, it is still important to create a budget but make sure to also indicate the actual amount spent. You can use a table to better present and organize your variables. This way, you can compare and contrast your estimated budget against the real value. It is important to remember, however, that a budget may not always be implemented 100% down to a tee. It is still a possible outcome for a company or organization to end up either saving money or going a little over the budget.

How to Create a Business Budget

To create a business budget, you need to have a broad understanding of your business and organizational needs. If you are looking for reliable sample templates, you can easily download any ready-made budget template from the selection above. Choose one that best suits your needs and follow the step-by-step guide below. 

Step 1: Format and Objectives

Before filling in any amount or variable, you need to establish a format first. Most formats are quite similar, but it can vary depending on the needs of the company. Fortunately, you don’t need to start from scratch with the wide collection of available templates. Using a predesigned template can save you a lot of time and effort. In addition to the format of the worksheet or document, you may also indicate or state a couple of financial objectives or budgetary goals. For instance, if your company decides to cut costs for the fiscal year, then that would have a direct effect on your business budget plan. 

Step 2: Income

The next step is identifying and enumerating your business income. As discussed in the previous section, revenue or income must always be included in a business budget. You need to determine all your sources of income. It is best to specify each. Whether income is in the form of profit, sales, dividends or capital gains, these must all be listed down accordingly. Having a clear and firm grasp of how much money is coming in is crucial when deciding and preparing a budget. Basically, it helps to know how much you are earning so you can make better and more sound financial decisions.    

Step 3: Expenses

After identifying your sources of income, the next step is coming up with a detailed breakdown of company expenses. Income and expenses must always go together. These two factors are basic in any formal budget. Entries or items listed for this section will vary, of course, on a case-to-case basis. But as mentioned in earlier sections above, there are some common and universal expenses that apply to most businesses, if not all. Examples of business expenses include employee costs, supplier payments, marketing costs, and operating costs. In your business budget, be sure to indicate each amount for every month. 

Step 4: Analysis 

Once you have filled in all the values for both revenue and cost, the next step is conducting an analysis of the values you presented. Just because you completed your table or spreadsheet, the work does not necessarily end there. You need to come up with a summary or report based on the figures or number in order to make sense of it. What do the numbers mean for the company? Are the values indicative of something positive or negative? What must be done moving forward based on the overall assessment of the balance sheet? Again, it helps to go back to your business budget objectives. Conducting an analysis or evaluation of your budget can help shape your next financial goals or plans. It can also help you identify areas for improvement or growth.      


What are the 3 types of budgets?

According to ICICI, the three main types of budgets are a balanced budget, surplus budget and a deficit budget.

How do you create a business budget?

To create a business budget, you need a deep understanding of not just your business’ income and expenses, but also your company’s needs. Refer to the previous section for a more detailed guide on how to create a business budget.

Why is the budget important in business?

Learning how to budget is crucial in business because it guides your financial decisions and enables you to make sound financial projections as well. If you have a clear picture of your earnings and expenses, you will be able to determine if you can afford something or not.

A business budget is not merely a spreadsheet or balance sheet full of numbers. It is supposed to be a tool that will help you weigh your company’s financial decisions and plans. Browse the wide collection of sample templates above to get started on your own budget now!