Budgeting 101 for Small Businesses

Budgeting is the first step to effective money management. Be it your personal finances or business finances. A budget acts like your guiding light for a period of time. 

I must admit, creating a budget for your personal life or your business is a time taking process and needs one to approach with the right set of skills and knowledge. 

Which is why today I am here to talk about setting a budget for your business – the steps involved, factors you need to consider and why it is so important. 

Well, lets simplify the process into actionable steps:

Step 1 – First, decide the period for your budget — a full year or a quarter. While yearly budgets are common, newer businesses (under 5 years) often benefit from quarterly budgets since they’re still exploring opportunities, testing services, and learning. The same applies to highly seasonal businesses like those in travel and tourism. 

Step 2 – A budget isn’t just a list of expenses — it should also reflect your goals and objectives. Start by defining your business goals for the chosen period: your main focus, purpose of your business, and both monetary and non-monetary goals [more on setting a sales goal in an upcoming article]. Also, clarify your values as a business owner — what matters most, how you want to grow, and what success means to you. These define the direction your business will take in the coming months.

Step 3 – Now begins the number game — list the essential expenses your business needs to stay in tune with its main focus, achieve its purpose and listed monetary and non-monetary goals. Ensure they align with your values. As you do this:

1. Question every single expense item you list – Assessing the necessity, Scrutinise the value for money you are likely to receive, Know all your alternatives before you make a choice. [A.S.K]

2. Rank the expenses based on priorities. This will guide you in long term decision making.

Voila! You have a workable budget for your business!

The budgeting process involves your judgement as a business owner – the business is a clay and you are the artist!

Are there set percentages of how much expenses your business should have, just like the 40:30:30 for a personal budget?

The answer, unfortunately, is no! It’s nearly impossible to have fixed ratios or percentages for business expenses. Every business is unique — varying by sector, size, age, and economic factors. One business might have a profit margin of 41%, another 25%, and a food business as low as 5% — and yet, all three can be equally successful! 

Is this time-consuming process of setting a budget, worth it?

Hell, Yes! Let me convince you. 

Imagine starting the year fresh—no budget, no numbers. The first few months go smoothly; sales roll in, expenses seem fine. But soon you realise you’re earning yet ending each month with nothing left in your bank account—thanks to unplanned spending! Panic hits, and you chase every opportunity just to earn more. By year-end, you’ve made some profits but strayed far from your values, from the very purpose and focus of your business, spent way too many hours working on your business more than you’d like and also probably spent a lot money on things that are not necessary for your business or you.  

A budget is your guiding light - It gives you a direction for the year, defines goals and purpose and aligns everything to your values. All this so you and your money are working together towards your long term mission enabling you to lead a more fulfilling life. 

Let’s wrap up with this — take a moment today to review your expenses. It’s the first step that will naturally lead you to set a strong budget for the new year!

Written by

Mrudula Muralidhara

Finance Coach and Founder

Million Goals