A basic business budget and what it typically includes

A business budget is a financial plan that outlines expected income and expenses over a specific period (usually monthly or annually). Think of it as a blueprint for managing money, helping business owners control spending, set goals, and prepare for the unexpected.

It typically includes:

• Revenue projections (e.g. sales, service income)
• Cost of goods sold (COGS) if applicable
• Fixed costs (e.g. rent, insurance)
• Variable costs (e.g. materials, commissions)
• One-time expenses (e.g. equipment purchases)
• Profit projections (income minus expenses)
• Cash flow goals

Fixed vs. variable costs and how a business should categorize them

Fixed Costs

These stay the same regardless of business activity. Examples:

• Rent
• Salaries (not commissions)
• Insurance premiums
• Depreciation

Variable Costs

These fluctuate based on production or sales levels. Examples:

• Raw materials
• Utility bills (some vary)
• Packaging
• Sales commissions

Best practices for creating and updating a monthly budget effectively

• Start with historical data: Use past months to spot seasonal trends and average costs.
• Involve your team: Department heads often have insight into upcoming expenses.
• Be realistic: Avoid best-case projections; focus on achievable revenue and necessary spending.
• Track regularly (weekly if possible): Monitor actual vs. budgeted figures so you can adjust early.
• Update monthly: Each month, revise future months with actual performance and any new information.
• Add a buffer: Build in a contingency fund for surprises (aim for 5–10% of monthly costs).

How should a budget align with financial statements?

Your budget isn’t a separate document—it’s a forward-looking version of your financial statements.

• Budgeted income becomes your projected Income Statement (Profit & Loss).
• Cash forecasts should tie directly to the Cash Flow Statement.
• Planned asset purchases and loan payments feed into your Balance Sheet over time.

This alignment ensures that what you’re planning matches how your finances will actually be reported—and helps you spot inconsistencies early.