Why effective business budgeting creates a more profitable company

Image of a hand typing on a calculator
Picture of crunch software on mobile

Professional Bio Templates & Examples

Create a compelling professional narrative for a proper, attention-grabbing introduction.
Website bios
Speaker intros
Professional Profile

What is business budgeting?

Simply put, a business budget is a plan for your company's spending based on its income and expenses. It helps predict revenue by taking a look at your available capital and estimated spending while helping you set financial goals for your business and measure actual performance against them.

Sometimes it’s easy to get lost in the differences between a forecast and a budget. But just remember that technically a budget is still a forecast because it makes a prediction of your finances over a specific period of time. 

When it comes to your business, you need to know where every penny is coming from and where they’re being spent. A budget can help you outline where your business will spend money over the next week, month, or year, to help you make better decisions to help your company grow.

While you may still be managing your books manually, tools like Crunch exist to automate the accounting processes that you may be wasting valuable time on. Using specialised software for activities like bookkeeping, CIS, payroll, pension auto-enrolment, and more, can save you in the long, and short-run!

Why does a business need a budget?

Have you been looking for a way to reduce debt? Have you been trying to increase opportunities to find investors or secure loans? This is where having an effective business budget can help. 

A budget plays an important role in determining start-up and operating costs, estimating revenue and expenses over a specific period of time, and driving important business decisions. Besides just keeping on track financially, business budgets can help to:

  • Manage cashflow
  • Allocate resources
  • Measure performance
  • Meet objectives
  • Improve decisions
  • Identify and mitigate risk
  • Create future plans

No matter the size or age of your company, a business budget is an essential part of the business plan and is key for setting up a new company. 

{{budget-guide}}

What are the different types of business budgeting?

There are a few different types of business budgets that companies make use of to accurately predict their numbers. Some of these include, but aren’t limited to:

  • Master budgets
  • Static budgets
  • Operating budgets
  • Cashflow budgets
  • Financial budgets
  • Sales budget
  • Capital budgets

Master budget

A master budget includes projections for items on the income statement, balance sheet, and cashflow statement. These can include your: 

  • Revenue
  • Expenses
  • Operating costs
  • Sales
  • Capital expenditures 

This budget combines individual budgets to give you an overall financial outlook and is more common for larger businesses because they help managers see how their budgets fit into the company’s overall financial plans.

Static budget

Some industries use static budgets as a starting point or a baseline, similar to the master budget. This is when managers use economic forecasting methods to determine realistic numbers, estimating revenue and expenses that will remain fixed throughout the year.

Operating budget

As its name suggests the operating budget focuses on the operating expenses, including the cost of goods sold (COGS) and the revenue or income. This includes overhead and administration costs but not items like capital expenditures and long-term debt. This budget outlines the funds a business needs to operate efficiently.

Cash flow budget

These types of budgets can help you check your past performance to see what's working and what isn’t… then make adjustments from there. You may find you need to adjust things like short-term working capital lines of credit, flexible account payment options, etc.

This budget can help you make key financial decisions, identify possible shortfalls, and curb unnecessary spending.

Financial budget

A financial budget provides details about your company’s assets, liabilities, and equity. This gives you an idea of your company’s financial stability and can be a valuable tool when looking for investors or when looking to sell. 

Sales budget

Sales budgets can give you details on projected revenue, expenses, and estimated sales during the budget period. This can help you plan for meeting the demands expected from your customers in the future. 

Capital budget

Capital budgets help you in planning for larger purchases or costs. For example, planning for machinery, vehicle, or property purchases. This type of budget will outline the cost of the asset, the payback period, and the potential return on the purchase. 

What makes an effective business budget?

A good budget will be able to give you a clear picture of the company's financial standing at any point in time. It should also be flexible enough to allow for changes in your circumstances. Typically, most businesses calculate their budgets once a year and arrange them by months or quarters, but you should do what makes the most sense for your company. 

As a new business, the first budget you create may be tricky to get right. However, it’ll be a great learning experience and will help you better understand what works best for your business. While an initial budget will possibly make use of several assumptions or educated guesses to get it started, the best place to begin is by knowing the basic elements that make up a budget and go from there. 

Estimated revenue

Your estimated revenue can be based on the previous year's numbers (or industry averages if the business is a startup).

Fixed costs

These will indicate regular, consistent expenses that don’t fluctuate based on an increase in revenue. For example, these could include:

  • Rent
  • Utilities
  • Insurance
  • Accounting services
  • Legal services
  • Equipment leasing
  • Bank fees

Variable costs

Variable costs could be anything from salary costs, production of goods costs, amounts that fluctuate based on revenue, etc. 

Once-off costs

Often, once-off costs are startup costs to serve a specific goal. These could include:

  • Moving expenses
  • Equipment
  • Software
  • Furniture
  • Research costs
  • Launch costs

Cashflow

Cash is king and your company's cash flow should be monitored weekly, or at the very least, monthly. For instance, a positive cash flow means that there is an influx of funds coming into your business over a set period vs outgoing funds.

Profit

Your company's profit margin reflects the difference between your revenue and expenses. Monitoring this will allow you to see if your company should reconsider their pricing, boost advertising, etc. 

Useful budgeting tips for your business

Every business needs to think about the unique quirks of their industry and business type when creating their budgets - yours is no different. 

While effective budgets typically have the same frameworks, there are distinct differences in budgeting for some of the major industries that you'll need to take into consideration. 

Here are a few tips to keep in mind when creating a budget for your business:

  • Involve your employees
  • Don’t underpay yourself (read our guide on Paying Yourself When Self-Employed)
  • Define and understand your risks
  • Overestimate expenses
  • Pay attention to your sales cycle
  • Remember that time is money, too
  • Constantly revisit your budget

Business budgeting considerations for industry types

Seasonal businesses

Because seasonal businesses aren't consistent each month, budgeting for these differences can provide a good view of your past and present data to help predict your future cash flow. By forecasting in this way, you can spot annual trends, finances needed to get through slow seasons, and opportunities to cut or offset costs.

Ecommerce businesses

When it comes to eCommerce businesses, you’ll need to pay attention to budget items like different packaging types, varying shipping rates, cost of goods sold, warehousing costs, duties, etc. 

Inventory businesses

To effectively budget for your inventory business, you’ll need to take a look at the previous year's sales or industry benchmarks to take the best guess at the amount of inventory required. 

Also, this will need to be taken into account when calculating the cost of goods sold because you’ll need to factor in any upfront costs. By stocking up early, you may be able to negotiate certain shipping costs, get discounts for bulk orders, etc. which you can also factor into your budget.

Service businesses

In a service business, your budget would change based on the number of people required to provide the service and the cost of their time. These figures may change based on ever-changing customer demand, specific times, etc. 

Specialised tools like Brixx can help you plan your financial forecasts and statements for your industry's unique needs. This can help your business save valuable time and resources by automating key processes that can help you make smarter business decisions. Read more about Crunch’s integration with Brixx.

Speak to an accounting expert

If you're unsure what level of support you need, our friendly team are on hand to help you pick the right package for you.
Self Assessment tax returns done for you, from just £200+VAT
Take the stress out of Sole Trader Accounting, with our simple online software, so you can look after your accounts anytime, anywhere.
Share this post
Tom West
Previous Community and Social Manager
Updated on
July 6, 2022

Knowledge Hubs

Take control of your accounts, today

Crunch’s effective software package includes being able to talk to an expert client manager and a Chartered Certified Accountant. You can count on Crunch to make you productive and profitable.

Save your seat! Live e-commerce webinar

Register and soak in the wisdom from top industry leader! June 27, 2024 1:30 PM
Dive into e-commerce basics
Expert industry insights
Practical tips and savvy tricks
Pro Tip
Wondering how the Autumn Budget affects your bottom line?

Download our guide for expert insights from an accountant, tailored for business owners and the self-employed.

Pro Tip
Work out the tax you owe in seconds

Discover your true take-home pay with our self-employed tax calculator – see exactly what you’ll keep after tax, National Insurance, and expenses.

Pro Tip
Want to know how much National Insurance you owe?

Find out exactly what you owe on your income in seconds with our free National Insurance calculator.

Pro Tip
Want to know how much mileage you can claim for?

Our free mileage allowance calculator can help you see in seconds what you could get back.

Pro Tip
Want to work out your income tax?

Find out what Income Tax and National Insurance you owe on your earnings with our free tax calculator.

Pro Tip
Want to work out what your Capital Gains Tax bill?

Our free Capital Gains Tax calculator shows what tax you owe on any property, stocks or gifts.

Pro Tip
Want to know how much dividend tax you owe?

Find out exactly what you owe on your investments in seconds with our free dividend tax calculator.

Pro Tip
Want to see what we're currently working on?

Our public roadmap shows what we're working on and what's coming next. You can even vote on what features we work on next!

Pro Tip
Your ultimate guide to stress-free taxes

Tackling taxes can be tough! Get our "Ultimate tax guide for the self-employed" now to make it easier.

Pro Tip
Claim your FREE ecommerce guide today

Curious how great accounting can boost your e-commerce business? Download our guide to discover 8 key ways!

Pro Tip
Unlock the secrets of Ltd company expenses

Don't miss out on potential tax savings - get access to our 'Limited Company Expense' guide today!

Pro Tip
Want to make sure you don't miss any tips?

Sign up to our newsletter for expert insights, tax news and other essential updates that will keep your business thriving. Subscribe now!

Pro Tip
Ready to save big on Ecommerce accounting?

Crush your current accounting and software fees by up to 60%. Put us to the test and watch your savings soar!

Pro Tip
Looking for a dedicated accountant?

Our Enterprise packages offer tailored support for you and your business. You can focus on your business, we'll crunch the numbers.

Pro Tip
Boost your business finances with our Ltd Company packages!

Award-winning software with support from expert accountants

Pro Tip
Take the stress out of Sole Trader Accounting

Real-time insights, expert support—stay on top of your finances with ease.

Pro Tip
File your Tax Return

Get your tax return sorted by experts for only £200+VAT!

Pro Tip
Using cloud-based accountancy software to manage your finances gives any small business a big advantage!

At Crunch we provide affordable cutting-edge, easy-to-use software with real human support from expert chartered accountants. That’s probably why 81% of our clients would recommend Crunch.

Pro Tip
Want access to real expert accountants?

All our accounting packages include free access to Chartered Certified Accountants, so you can make confident business decisions without worrying about extra costs racking up.

Pro Tip
File you Tax Return!

Crunch’s Self Assessment service provides an expert accountant to complete, check, and file your Self Assessment for you for just £200 +VAT.

Pro Tip
Did you know - We have a free plan that is great for sole traders and limited companies?

Why not see for yourself? It’s simple and easy to use and 100% free.