A guide to small business budgeting
A solid budget is often the backbone of a business’ future success. However, creating a budget is tough when a business is first starting, and difficult to stick to even at the best of times.
Why is small business budgeting important?
Estimating your business’ future revenue and expenses via a budget and sticking to it is important because it helps a small business look past the short-term and determine whether it will have enough money to operate, expand, and ultimately be successful. Without an adequate budget, a business exposes itself to overspending and leaving its coffers dry for the future, or not spending enough and hindering its growth and competitiveness.
How to create a business budget
When you create a business budget, you need to include projected revenue, typically on a monthly basis. An already established business can budget for its revenue based off of historical information, but for a new business the process isn’t as easy. Owners often must make assumptions based off of similarly situated businesses in their area.
When budgeting for expenses, the business must take into account three types of expenses.
- Fixed Costs – These are expenses that do not change in the short-term, regardless of the business’ activity. They include amounts such as rent, salaries, mortgage payments, and property taxes.
- Variable Costs – These are expenses that vary directly with the business’ sales or activity. One example is inventory expense, where the more inventory a business sells, the higher the business’ variable costs are.
- Mixed Costs – Also called “semivariable” costs, these are expenses that are both fixed and variable in nature. For example, a telephone bill may include an amount for a monthly fee to use the service and an amount that is determined based on the telephone’s usage. The monthly fee must be allocated to fixed costs, while amounts based off of usage are allocated to variable costs.
How often to review the small business budget
That depends. Large businesses and already established small businesses typically review their budgets annually. Small businesses starting out should take a more dynamic approach and review their budgets more frequently.
Budgeting for income taxes
While budgeting for your business’ income and expenses can be a challenge, budgeting for taxes can be simpler. The calculations for taxes paid by a business for a year are typically set by the federal and state governments prior to the beginning of the year. That said, the amount budgeted for taxes should be reviewed at least annually to reflect changes in laws and a business’ profits; and possibly more often than that if the business’ income fluctuates significantly during a year.
It’s helpful to create a business budget that factors in a 15.3% self-employment tax, which most small business owners will owe. In addition, paying your estimated taxes on a quarterly basis might help you tackle your tax obligations so you’re not paying one lump sum each year.
Need help with determining your estimated taxes? We can help! See how one of our tax pros can help you estimate your quarterly payments so you avoid paying too much.
Budgeting for payroll taxes
Taking into account the costs of paying your employees is crucial, and costs much more than just their wages. The taxes most employees see withheld from their wages are already accounted for when you budget for their base wages. However, employers are also required to pay the “employer’s portion” of certain taxes and benefits that are not deducted from the employee’s paychecks.
- For example, if you pay an employee $40,000, in addition to the amounts deducted from the employee’s paychecks, the employer must also pay an additional $3,060 for Social Security and Medicare taxes, which is equal to 7.65% of the employee’s wages, to the IRS.
In addition to Social Security and Medicare taxes, an employer must also pay state and federal unemployment taxes. State unemployment tax rates and limits vary from state-to-state mostly depending upon the status of the employee. While the federal unemployment rate generally equals 6% less the percentage paid for state unemployment tax, subject to a maximum of $420 per employee.
Branding on a budget
Marketing costs for your small business could rise quickly, but luckily there are tools out there to minimize the costs. Here are some low-cost tools for small business marketing and branding on a budget:
- Blogging platforms: Adding relevant and informative copy to your website is free! Search engines pick up specific keywords you target, this is called search engine optimization. So it’s important to integrate commonly used keywords within your brand’s website copy.
- Branded items: Business cards and promotional items are great for brand building. (You can find budget-friendly options online.) They provide a great takeaway for potential customers, too!
- Online video streaming: Video is highly consumed in today’s world, especially live or video streaming. It’s a great, and free, way to get your message across! From how to’s and product introductions, to case histories and company information, there are so many things you can plug about your business online.
- Social media: Any social media platform is free to join as a business—just make sure you connect with the right people— your target audience and influencers within your target audience mainly—and you should be able to grow your online network organically (and at no cost).
Whatever approach you take to promoting your brand, be consistent. Your customers should know you when they see you.
More help with small business budgeting tools
Large corporations spend a lot of money on brand development and support. Some, in fact, will invest a dollar figure that is many times your business’s annual operating budget just to choose a name or a logo or a color scheme. They convene focus groups. Take polls. Hire expensive consultants.
You may not have financial resources on that scale, but you also don’t need a customer base of millions. There are small business budgeting tools available to help you manage your small business budget, no matter how big or small.
How can Block Advisors help? Keeping an eye on your budget starts with knowing where your business financials stand. You can rely on your Block Advisors pro for help with getting your taxes, bookkeeping and payroll in order, making your budgeting tasks easier.
Ready for help with your taxes, bookkeeping and payroll?
Connect with us at blockadvisors.com.