How to Budget for a Small Business

As the former small business owner of a sign business for over 14 years, one of the biggest things I struggled with was how to budget for a small business. And towards the end of our time as small business owners, not planing wisely ended up in our ultimately closing our small business. Planning your budget for your small business is crucial to your success - or lack of it.

In California, where we owned and operated our small business, the rate for business failure was a staggering 69% in 2011 alone. General statistics for the rest of U.S. small businesses are:

  • 57% of all small businesses fail in first year.
  • 80% of all small businesses fail within the first 5 years.
  • 80% of those that survive the first 5 years, fail or close after the second 5 years.

Saving money and budgeting for a small business may mean breaking out the piggy banks.
Saving money and budgeting for a small business may mean breaking out the piggy banks. | Source

"Fail to Plan, Plan to Fail"

So with the failure rate for small business being so high, what can you do to budget for your small business? After all, money is the main reason you are in business, correct? Being philanthropic at this moment and saying you are in business to "do good deeds" or "live out your dreams" is really going to kill your small business because the bottom line is that you have to survive, and it takes money and planning to do this, right? You are in business to make money, feed and clothe your family, provide shelter for them and yourself, and to live - bottom line.

The #1 bit of business advice I can give to someone starting a small business is this:

Get a book-keeper IMMEDIATELY. And a good one at that. Hire someone who understands small business, works with small businesses and can help you understand profit and loss, budgeting and financial planning. This will be the most worthwhile thing you can do for yourself and your business. If you do not understand these things you are doomed to failure.

#2: Contact your local SCORE office and make an appointment to see a counselor who will walk you through what it's like to be a small business owner. This service is FREE, and the counselors are people that have been in small business themselves and understand what budgets and operating a small business are all about. They can even guide you into free resources that will help you learn how to prepare a budget for your business. There are also classes that you can take at your local college. Understanding money, cash flow and your budget are essential to your success.

The work we did in our small sign business

My husband I did quality work, which was the thing that kept us in business so long, but book-keeping was not our strong point. If I had it to do all over again, I would have kept a financial planner/small business book-keeper on deck.
My husband I did quality work, which was the thing that kept us in business so long, but book-keeping was not our strong point. If I had it to do all over again, I would have kept a financial planner/small business book-keeper on deck. | Source

Understanding small business cash flow

#3: Sit down and honestly crunch some numbers. Take into account your overhead: what it actually costs you just to keep your business afloat - rent, utilities, employees if you have them, equipment, monthly costs, monthly leases, materials, advertising, health insurance and gas are just a few of the "biggies" when planning your budget. Once you take a look at these numbers alone your jaw may drop when you realize you need to make a profit on top of that!

This is in no way an article to discourage you from starting a small business but rather a primer for what starting a small business is all about. How to budget for a small business is one of the number one things that will determine the survival, failure or closure of your small business. Best of luck and if you have any questions feel free to ask in the comment section below.



Why a having a budget for your small business is so important

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Comments 6 comments

VirginiaLynne profile image

VirginiaLynne 4 years ago from United States

Dorsi--such a great point to make. I'm in a small craft business with my daughter and we decided to rent a space in a craft gallery. So far, we aren't selling enough to make our rent, but I do know I can write off the expense (not really very much) on my taxes. I'm seeing this as a learning experience for both of us. I think if we were trying to really earn a living off a business we'd definitely need help and lots of planning. Probably it would help to take some classes in starting a business too. Great hub! voted up and useful!


Dorsi profile image

Dorsi 4 years ago from The San Francisco Bay Area Author

@Virginia) Thanks and I think that's a great way to get your feet wet (and yes being able to write off the expenses is great) Hopefully you will sell enough crafts one day to make a profit. And I highly recommend business classes. It's always good to learn as much as we can.


kissayer profile image

kissayer 4 years ago from Sydney, Australia

Excellent hub! I'm a small business owner myself and have grown up with my parents owning their own business and budgeting is very important - especially in the initial stages!

Voted up :)


Dorsi profile image

Dorsi 4 years ago from The San Francisco Bay Area Author

@kissayer) Thanks and yes, as business owners we sure need to be on the ball about the financial side of the business. Sometimes we get so wrapped up doing all the other stuff that finances take a back-burner, but they can't because that's what drives the business! (and feeds us lol)


Seeker7 profile image

Seeker7 4 years ago from Fife, Scotland

This is an excellent hub Dorsi and coming from someone who has owned their own business it should make people take note of the essential information you're giving out here.

I joined a free Government (in the UK) scheme a few months ago called Business Enterprise and it's bascially free information on how to start and run your own business. I was shocked at how many things I hadn't thought about and in particular - budgeting. Apart from making a business plan, budgeting was also the big topic that they hammered into you, even although it was already covered in the business plan module. I was really glad that I joined the Business Enterprise since for sure I would have been finished before I even started.

Great hub + voted up and shared!


Dorsi profile image

Dorsi 4 years ago from The San Francisco Bay Area Author

@Seeker7) We actually joined a franchise within the time we owned our small business and guess what the first number #1 thing was in the franchise book? Getting a good book-keeper and making a budget. So even franchises know how important this is. Glad to hear you got some help in the UK there - so important to learn those things first!

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