All businesses start with an idea, but even the best ideas won’t go far without an organized plan to measure success. The most important part of any business plan is the budget, as it helps you to track growth and develop goals to strive for. When starting out, however, creating and maintaining an accurate budget can be daunting for even the most seasoned entrepreneurs—few know what needs to be tracked or how to organize financial data.
To help you get started, we’ve compiled everything you need to know about setting up a budget for a small business, along with spreadsheet templates for you to try out.
Why Do Businesses Create Budgets?
A business without a budget isn’t likely to be a business for long. Even a child’s lemonade stand will need to keep track of resource costs and sales revenue to continue operating. Creating a budget is essential to the success of your business, and maintaining an accurate budget will help you:
Maintaining a budget helps your business identify successes and shortcomings. By setting a budget based on prior financial data, you can accurately track what your business is doing well and where you can still improve.
For example, you may find that a particular product is selling exceptionally well, but that the high cost of a resource is preventing profitability. A budget will help you track the cost of this material and help determine if money can be saved by buying in bulk.
Create Transparent Goals
Many small businesses encounter the issue of setting vague goals due to the rapid changes going on within the business. You can use a budget to clearly define short and long-term goals in regards to revenue or expense expectations.
Simplify your decision-making process by using a budget to determine how you should allocate resources. A budget tells you what you can afford now and forecasts how much extra capital you’ll have in the future. Use this data to decide when it’s the right time to do things like hire new employees or move to a new office.
Our Free Small Business Budget Template Recommendations
The following free budget templates are a great way for small business owners to start tracking their finances. Fill out these spreadsheets to get general insights about the finances of your organization, such as how much money is coming in and out of your business.
Our partners at Intuit QuickBooks have created a guide that breaks down budgeting for small business and personal use. Read their expert budget tips and download their free spreadsheet to start planning your company’s finances.
This is a great basic budget with all the fundamental parts in one place. It’s great for brand new businesses that aren’t managing a lot and need a way to track their finances while getting started.
Google offers plenty of templates for you to choose from that can help you create everything from invoices to expense reports. Additionally, you’ll find guided instructions for templates created by our partners Xero and Intuit Quickbooks.
This collection of sheets has various parts of the budget split up, so you can go more in depth on each. This option may be helpful for businesses that are already using a budget but are lacking specific parts such as an employee shift schedule to determine wages.
Gusto has a great budget template with a step-by-step guide for filling in the information. Follow along and customize this spreadsheet to create a balanced budget for your business. Gusto even goes a step further and shows you how to make adjustments to help reduce costs.
Gusto’s budget template covers all the basics, with the benefit of a thoroughly guided setup. Easily fill out this template by following along with their step-by-step instructions for creating a startup budget.
If none of these options seem like a good fit, you may want to consider creating your own customized budget from scratch. In this article, Xero breaks down the key parts of a small business budget, and what information you need to include when making each section. Xero also discusses whether it’s worth the time and effort to create a budget, or if accounting software may be a better option.
Put your accounting on autopilot.
How to Know When Your Business Has Outgrown a Manual Budget
Although the budget templates above are a good place to start, it’s important to recognize that these are only a short-term solution. As your business grows, your finances will become increasingly complex and you’ll need access to features that programs like Excel and Google Sheets simply don’t offer.
If you’re unsure about when to make the transition to accounting software, here are a few things to consider:
How Old Is Your Business?
Much like some of the other questions in this list, there’s not a golden rule that says when you need to switch to accounting software. A business could start using accounting software immediately when they open, or they could wait until they hit a specific growth goal. However, we recommend making the transition as early as possible, because doing so will help you better manage your business’s finances and free up more time to let you focus on other tasks.
How Much Revenue Are You Managing?
Ideally, your business would be set up with accounting software before making any sales, but having accounting software becomes essential as your revenue and expenses grow. There’s not a specific amount of revenue that determines when accounting software becomes necessary, but trying to manage a high-performing business in a basic budget spreadsheet is a recipe for errors and mistakes.
Additionally, you may be required to use an accrual-based accounting method (recognizing income as soon as it’s earned) if your annual gross revenue exceeds $5 million. This is more complex than the common cash basis method (collecting income when it’s received), so switching to accounting software may be required when you reach this point.
What Does Your Customer Base Look Like?
Do you have a few large customers with a lot of data, or are you selling at a higher frequency with fewer insights into your audience? Either way, accounting software can help you better serve your customers through seamless integration. Rather than having to dig through several records to pull up various reports, accounting software combines everything into one easy to use dashboard so you can provide quick answers to customer questions.
Do You Hire Employees or Independent Contractors?
It’s very popular for small businesses to start by outsourcing work to independent contractors until they can afford to hire part or full-time employees. The benefit of hiring independent contractors is that doing so does not require you to deduct payroll taxes or provide benefits. However, you are required to provide a Form 1099 and report details to the IRS if total payments at the end of the year are $600 or more.
What are your business goals?
Think about the short and long-term goals for your business. What do you want to accomplish six months, one year, and three years down the road? If you plan to keep your small business roughly the same and don’t anticipate many changes, you might be able to get by with just using a budget spreadsheet (although accounting software will still save you time). However, if you’re looking to grow your business and anticipate lots of changes, then you should consider switching to accounting software as soon as possible.
The benefit of using accounting software over a simple spreadsheet is that the software scales with your growth. You may not need certain features when first starting your business, but they’ll be there when your business reaches that growth point (plus it’ll be nice to already have your data already organized in one place).
Overall, the sooner you switch to using accounting software, the easier it will be to integrate your existing data and get access to essential features for a thriving business.
Put your accounting on autopilot.
Features to Look for in an Accounting Software
Comparing long lists of features between accounting software options can be confusing, as you might not know what features you’ll actually need. To help, we’ve broken down the must-have features for any small business looking to take the next step in managing their finances:
Almost every accounting software offers some form of bookkeeping service, but the depth will vary widely in terms of features. The basics include monthly balance sheets and income statements, but that will still leave you with a lot of tedious tasks that will chew uptime. Instead, look for a service that offers automatic expense categorization in real-time. This will save you countless hours and help give you accurate data for on the spot decisions.
Additionally, consider how you’ll be viewing this information. Look for software that offers an easy to use dashboard so your team can accurately understand and interpret data. Ideally, you should be able to customize the dashboard to filter for relevancy and compare current vs past performance to stay on track.
Beyond paying your employees, your accounting software should give you several other essential payroll features. Don’t enter data twice, look for a solution that syncs with accounting and allows you to breakdown spending into categories like wages and benefits. Save even more time by choosing an option that allows you to hand off time-consuming tasks like employee setup and salary adjustments.
3. Tax Management
Avoid missing deadlines and paying fines by partnering with an accounting software company that also helps you stay compliant with tax regulations. Keeping up with deadlines can be difficult when you don’t even know something is due, so seek out software that gives you automatic reminders to avoid tax issues. Additionally, some firms will include tax prep, review, and filing bundled into their software, which can be tremendously helpful for any business owner.
4. Bill Pay & Invoicing
Make sure your bills are paid on time by looking for software that will automatically process and track expenses. On the flip side, ensure your customers know when they need to pay by choosing an option that includes invoice management. Invoice management will help you track who’s already paid, and who you need to follow up with for collection.
Forecasting is used to predict future cash flow for your business, so look for accounting software that gives you a visual representation of cash in vs out for at least the next 3 months. Accuracy is essential for goal setting, so find software that compiles everything above in real time so you can set realistic targets backed by data. Using up-to-date information will also help you respond to sudden market changes quickly, so you can adapt your plans as needed.
Start Effectively Tracking Your Finances
A budget spreadsheet can be very appealing to small business owners looking for an easy way to manage their finances, but these are only a short-term solution that can cause long-term issues if relied on for too long. We recommend utilizing accounting software as early as possible so you can easily integrate your existing data and get access to features that will help your company grow.
There are several software options to choose from. ScaleFactor stands alone in the growing value it provides, offering several package options to accommodate the unique needs of your business. Contact us today to learn how we’ve helped empower business owners to make the best strategic and financial decisions.