Creating a Business Budget in Seven Steps: Tips, Tricks, and Guidelines
Lots of us made our first budgets in our early years of college, mostly consisting of ramen and 3-packs of white t-shirts. Making a budget for a business, on the other hand, is a completely different beast. Since your income and expenditures can vary wildly from month to month, a static plan can be hard to nail down.
Constructing a budget as a business owner requires a full evaluation of your typical income and spending. Once you put one together, you’ll have a much clearer picture of your liquidity and spending trends at any given moment. This can allow you to make hiring and investment decisions that you wouldn’t have been as comfortable executing before. While a budget can't prevent every bad outcome, it can put you in a better position to avoid them before they catch you by surprise.
We put this guide together to cover why budgets matter, how to build them, tips for making them stick, and the mistakes that business owners often make when creating them. No matter the type of company you run or the industry you’re in, getting a complete view of your finances is the only way to build a precise budget. This is where a modern finance platform like Slash can help. Slash arranges your incoming and outgoing payments, invoices, employee spend, and much more together on one dashboard. Building a budget can be a breeze when everything you need to measure is kept on the same screen.
The standard in finance
Slash goes above with better controls, better rewards, and better support for your business.
Why Should Businesses Create a Budget?
A budget is a formal spending plan built from a combination of expected income and revenue. It’s designed to help you manage what’s going out, what’s coming in, and what you can do with what’s left over.
Budgeting has plenty of benefits aside from monitoring your liquidity. The new data you unlock as you create your budget can enable smarter decision-making. For example, when you want to hire new talent or invest in equipment, an accurate budget can tell you whether that’s possible today or much later on down the road. Budgeting can also help you remain resilient with the help of a "contingency reserve." This reserve acts as a buffer to prevent a slow sales month from suddenly sinking your business. In layman’s terms, it’s like an emergency piggy bank.
While a budget isn’t too complex as a concept, there are actually quite a few different ways to create and manage them. Here are some of the most common methods companies use:
- Value proposition budgeting takes each expense and asks the question, “Does this directly create value for my customers and my business?”. If not, it may get cut entirely. It’s a helpful way to trim fat without eliminating the wrong things.
- Incremental budgeting means you tweak last period's numbers by a set percentage. It's quick and works well for stable businesses, but if you had serious problems within last month’s budget, it doesn’t give you the opportunity to make a big change.
- Zero-based budgeting has you reconsidering every line item from scratch each period, regardless of how things worked last period. While this can take a lot more time, it allows you to make large adjustments and reevaluate wasteful spending.
- Activity-based budgeting is a technique best meant for manufacturers and project-based businesses. That’s because you build financial plans based on the specific activities that drive operational costs, such as construction work or consulting jobs. On the other side of the spectrum, a typical retail store spends most of its money on inventory, meaning their expenses are more item-based than activity-based.
Seven Steps to Creating a Budget
Even if you have lofty plans for your business, building a budget doesn't have to take weeks. Once you have your financial data in front of you, the process can be more straightforward than you might expect. Here’s a checklist of seven steps you should follow:
- Estimate your revenue: Figure out what you expect to bring in over the period you're budgeting for, whether that's a month, quarter, or year. Existing businesses should use their past sales data as a baseline and adjust for any upcoming changes, such as a new product launch. If you’re launching a new business, you can use industry benchmarks and early sales data to build a realistic estimate. Remember: there’s nothing wrong with being conservative here. It's better to be pleasantly surprised than to fall short of high estimates.
- List your fixed costs: Fixed costs are any expenses that always stay constant regardless of your month’s sales or any other context. This usually includes things like rent, base salaries, insurance premiums, loan repayments, and software subscriptions. Your fixed costs essentially form the floor of your budget, which is the number you need to cover before anything else.
- Estimate variable expenses: Variable costs are the opposite, as they change based on business activity. Raw materials, hourly labor, shipping, sales commissions, and utilities can all fluctuate from month to month. To get a good estimate, look at what you spent in similar periods and factor in any possible changes in sales volume or input costs. For example, if material prices have risen since last year, factor in the new rate in place of the old one.
- Account for one-time and irregular expenses: This is one of the trickier steps. Some budgets underperform because they only track recurring costs and forget to expect the unexpected. Equipment maintenance, employee departures, and annual software renewals are all normal parts of running a business, which means you can’t ignore them as you make your plan. It’s helpful to review last year's bank and card statements for one-off expenses and build them into your annual budget, even if they're spread unevenly.
- Build in a contingency fund: To build a contingency reserve, set aside a dedicated portion of your budget for unexpected drops in sales or surprise expenses. You might set aside a certain number, such as 10% of your monthly revenue, or establish a certain cushion based on your industry’s volatility.
- Build a profit and loss projection: Once you've mapped out your revenue and expenses, it’s time to use them to do some math. When you subtract your cost of goods sold (COGS) from your revenue, you get your gross profit. Then, subtract your operating expenses to get your operating income. After accounting for interest, taxes, and other non-operating items, you’ll discover your net income. At the end of the day, you’ll want that number to be positive.
- Adopt expense tracking software: Keeping an eye on all of this can be difficult without modern software. If you try to manually log and track everything on a spreadsheet, it’s easy to make mistakes that throw off projections for months at a time. Expense tracking software can automate these processes and give you more time to work on adjusting your budget rather than tracking it.
Let’s talk a little more about that last step. Expense tracking solutions are designed to capture transactions automatically, categorize spending, and help you figure out whether you're running ahead of or behind budget. Platforms like Slash take these modern expense tracking features and connect them with your banking and accounting tools.
With Slash, all your business transactions are visible in real time on a live dashboard. The Slash Visa® Platinum Card makes it possible to enforce budget rules in the moment instead of after an expense is made.¹ Users can issue unlimited virtual Slash cards with spend limits and category controls that can be customized per employee. Additionally, each transaction can sync automatically to QuickBooks, Xero, Sage Intacct, and NetSuite, saving you time on manual copy-pasting.
The standard in finance
Slash goes above with better controls, better rewards, and better support for your business.
Business Budgeting Tips for Success
The number one budgeting tip? Abiding by it in the first place. Stowing your budget away and checking it at the end of the period makes it no better than a scorecard. Once you’re committed to actively monitoring your budget, here are a few more tips that can help you get the most out of it:
Evaluate Spending by Importance
Before finalizing your budget, think about the return that each expense offers. Does it help power current operations, acquire new customers, or build toward a long-term goal? If not, you may want to dedicate less money to it. Even if all your expenses are important in their own right, some can be sacrificed more easily than others. If liquidity’s tight and you’re about to break your budget, you can temporarily cross out “New Carpet” more easily than “New Accountant”.
Adjusting for Seasonal Variations
Retail, hospitality, and some service businesses often see big swings in revenue and costs throughout the year. A flat annual budget divided into twelve equal months won't really reflect reality for these teams. It’s wise to build your budget around those ebbs and flows, baking in higher marketing spend before peak periods, lower spend in the offseason, and money saving initiatives during high-revenue quarters that carry you through dry ones.
If your business has been operating for at least a year, your historical data will show the pattern clearly. However, doing the math itself and projecting into the future can be laborious. That’s why Slash comes with an AI agent named Twin that can dig through that data on your behalf and create a custom-built forecast.
Regularly Reviewing Your Budget
Your budget is a living document, if you think about it. The conditions you projected at the start of the period can easily shift, meaning a budget that stays stagnant will start looking inaccurate pretty quickly. Every couple periods, review your spending and revenue against what you predicted in the budget. If and when you find a big anomaly, figure out whether it was a fluke or a real change in income or spending. Flukes are something to keep in the back of your mind, but a jump in spending could represent a bigger-picture change that needs to be accounted for.
Common Budgeting Pitfalls to Avoid
Making a mistake or overlooking a key step as you make your budget can be costly, especially if you don’t keep an eye on it and adjust it later down the road. Here are some problems that business owners can run into as they develop their first budgets:
Underestimating Expenses
There are so, so many expenses waiting for you as you launch a business. Founders building their budgets often underestimate variable expenses, skip irregular costs, and forget about categories like license fees, and insurance. If you can, build your expense list from actual bank statements rather than memory. For business owners that truly have no activity to draw from, your contingency fund can end up acting as an “other” category to draw from if spending is higher than expected.
Neglecting to Update Your Budget
Even if your company isn’t seasonal, a budget that was accurate in February may be entirely wrong by April. When a major customer leaves, a key vendor raises prices, or you hire faster than planned, your estimates can be completely thrown off. As a rule of thumb, your budget should be updated whenever there's a big change in your business’s income or monthly purchasing.
Ignoring Financial Trends
While your budget will largely be built around your internal numbers, you should also take external numbers into account. The market around you can change more quickly than you expect. Rising supplier costs, interest rate changes, and new regulations can all make a budget obsolete within months. In industries like tech, trends and innovations can arise out of nowhere that change customer interest overnight. In any case, it’s best to stay current on as much outside context as you can.
Create a Smarter Business Budget With Slash
To build a budget and execute it, you should know everything you can about your income, expenses, and historical data. If you’re an overwhelmed small business owner, you probably don’t have time to dig through spreadsheets and bank statements to crunch the numbers yourself. That’s where Slash can step in.
Slash is a business banking platform purpose-built to give finance leaders and business owners an all-encompassing picture of their cash flow. Revenue, expenses, stablecoin transfers, our Treasury account, and more are gathered on one dashboard under one login.⁴,⁶ Here, you’ll also find Twin, our agentic AI assistant. With simple text-based prompts, Twin can help you break down your financial history and help you build a budget based on that data.
After you construct your budget, Slash can help you enforce it. With the Slash Visa® Platinum Card, you can set per-card limits and category controls that keep spending as tight or loose as you want. Additionally, these cards can link to dedicated subaccounts that come with their own set ceilings, giving you the ability to budget within your budget.
Slash comes with quite a few more features business owners can take advantage of, including:
- Native cryptocurrency support: Send and receive USD-pegged stablecoins USDC and USDT across eight supported blockchains for faster, lower-cost global payments.
- Diverse payment methods: Slash supports a wide range of payments, including card spend, global ACH, international wire transfers to over 180 countries via SWIFT, and real-time domestic payments through RTP and FedNow.
- Working capital financing: Access short-term financing with flexible 30-, 60-, or 90-day repayment terms to help bridge cash flow gaps.⁵
- High-yield treasury: Earn up to 3.82% annualized yield on idle funds with money market investments from BlackRock and Morgan Stanley, managed directly within your Slash account.
- Multi-entity support: Slash offers multi-entity account management tools without separate logins, allowing businesses to track spending, manage accounts, and download statements across all subsidiaries in one place.
The best part? The platform has no impact on your budget itself. Slash’s expense management and banking features are available under its free plan, meaning you have to dedicate exactly $0 a month to subscription fees. If you’re interested, reach out to Slash today.
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Frequently Asked Questions
What's the difference between a budget and a cash flow forecast?
A budget maps your planned revenue and expenses over a certain period, showing what you expect to earn and spend. A cash flow forecast focuses specifically on the timing of that money, accounting for the fact that some revenue may not hit your account for 30 to 60 days while other expenses have to be paid now. Your budget can tell you whether your business is profitable, while your forecast tells you whether you'll have the liquidity to fund it.
How to Build a 13-Week Cash Flow Forecast
How often should a business budget be updated?
It’s best to take a light review of your budget monthly and do a full revision quarterly. That said, if there's a major unexpected expense, a key hire, or a market shift, revise immediately rather than waiting for the scheduled review.
Which budgeting method should I use for my business?
That depends on your goals and your business’s momentum. If your company is steady and you just need small tweaks, incremental budgeting works. If you need to trim nonessential spend, value proposition budgeting forces you to justify each expense. When you want a full reset, zero-based budgeting has you rebuild from scratch. Manufacturers and project-based teams often prefer activity-based budgeting because it maps costs to the specific activities that drive them, including jobs and production runs.
How can a new business estimate revenue without historical data?
The best move is to start with industry benchmarks and any early sales signals, then stay conservative. Build your initial estimate around data from comparable businesses, and adjust for near-term changes like upcoming launches. As you do start getting real data throughout your first year, revisit your budget as frequently as you can.
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