How to make a business budget you will use.

A budget is a decision, not a forecast

A cash flow forecast predicts when money will arrive and leave. A budget decides how much you are willing to spend on each kind of thing in a month, so you can tell when you have drifted. Small businesses need both, but the budget is the one that changes behaviour: it turns "we seem to be spending a lot on software" into "software is 40 percent over its limit this month".

Step 1: start from revenue you can count on

Take the revenue of an ordinary month — not your best one, and not your target. If your income is lumpy, use the average of the last six months, or the lowest of the last three if you want to be cautious. Everything else in the budget is measured against this figure, so an optimistic number here quietly makes every category look affordable.

Step 2: list your costs by category

Go through the last three months of bank and card statements and group every cost. Ten categories cover almost every small business:

• Office and rent, including co-working and utilities.
• Software and subscriptions — the category that grows most quietly.
• Marketing and ads.
• Contractors and freelancers.
• Salaries and wages, including your own if you pay yourself a salary.
• Supplies and materials.
• Travel.
• Fees and charges — bank, card processing, platform fees.
• Insurance and professional fees — accountant, legal, insurance.
• Other, kept small. If "other" is large, it is hiding a category.

Mark which costs repeat every month whatever happens. Those fixed costs decide your break-even point, and they are the ones to review hardest, because they compound.

Step 3: set a monthly limit for each

For most categories, the average of the last three months, rounded up, is a sensible first limit. Then make deliberate changes: cut what you would not miss, and fund what actually brings in work. A budget that simply copies last quarter is a record, not a plan.

Step 4: set aside tax before you call it profit

Revenue minus costs is profit before tax. Decide a percentage of profit to move into a separate account as money comes in — 25 to 30 percent is a common starting point for small businesses, but ask your accountant for your real figure. Tax bills are only a crisis for businesses that spent the money first and worked out the bill later.

What is left after tax is what the business actually earned. If that number is not enough to live on and to build a buffer, the budget has done its job: it has told you something needs to change, before the bank balance did.

Step 5: find your break-even point

Your total monthly costs are the revenue you need just to stand still. Knowing that figure makes every decision clearer: a new hire or a bigger office raises it permanently, and you can see exactly how much more you would have to sell. The break-even calculator takes it further, into units and months.

Step 6: review it every month in fifteen minutes

A budget nobody looks at is a spreadsheet. Once a month, compare what you actually spent in each category against its limit:

• On track — leave it.
• Near the limit (say, over 85 percent with time left in the month) — slow down in that category.
• Over — find out why. A one-off is fine; three months running means the limit is wrong or the spending is.

Change the budget when it is consistently wrong. A limit you always break teaches you to ignore the budget entirely.

Common mistakes

• Forgetting annual costs. Insurance, domain renewals and annual software plans should be budgeted as a twelfth each month.
• Not paying yourself. If your own pay is not in the budget, the profit figure is fiction.
• Mixing currencies. Budget in the currency you earn in; convert foreign costs at a cautious rate.
• No buffer. Plan for some slack. Something unbudgeted happens most months.

Keep it running

The free business budget calculator sets up a monthly budget in a few minutes and compares actual spend as the month goes. Inside an AWGCOR account, your logged expenses fill in the actual figures automatically, each category shows how close it is to its limit, and the tax estimate works from what you have actually been paid — see expenses and budgets in the dashboard.