Business budgeting

A budget helps you plan income and spending and allocate resources. It should help you allocate resources where they are needed, and should not be complicated. 

Start by estimating what your business is likely to earn and spend during the budget period.

Most businesses start preparing a budget around two to three months before the start of a new financial year.

Begin by asking these questions:

• What are the projected sales for the budget period? Use realistic sales estimates so that you do not budget for income the business may not receive.
• What are the direct costs of sales - costs of materials, components or subcontractors to make the product or supply the service?
• What are the fixed costs or overheads?

You should break down the fixed costs and overheads by type:

• cost of premises, including rent or mortgage, business rates and service charges
• staff costs - pay, benefits, National Insurance
• utilities eg heating, lighting, telephone or internet connection
• printing, postage and stationery
• vehicle expenses
• equipment costs
• advertising and promotion
• travel and subsistence expenses
• legal and professional costs, including insurance

Your business may have different types of expenses, and you may need to divide the budget by department. Include the amount you plan to pay yourself and a tax allowance.

HM Revenue & Customs (HMRC) provides email updates, videos and webinars if you’re self-employed.

The budget should be in place before the start of the financial year.  Your business plan should help in establishing projected sales, cost of sales, fixed costs and overheads, so it would be worthwhile preparing this first. See write a business plan: step-by-step.

Once you have figures for income and expenditure, you can work out how much money you're making. You can look at your costs and work out ways to reduce them. You should also be able to spot if you are likely to have cashflow problems, giving you time to do something about them.

You should stick to your budget as far as possible, but review and revise it as needed.