Financial Reports
How to Create a Simple Budget and Forecast for Your New Business
3 min read
A budget isn't about restricting spending. It's a plan for how the business will make and spend money, so you can make decisions before problems happen.
Budget vs. forecast
- Budget: your plan for the year, usually set at the beginning
- Forecast: your updated expectation based on what's actually happening
Both are useful. Start with a budget, then update your forecast quarterly.
Step 1: List your fixed costs
Costs that stay about the same each month:
- Rent
- Insurance
- Software subscriptions
- Phone and internet
- Loan payments
- Bookkeeping and professional fees
Don't forget annual and quarterly costs: your LLC annual report, business license renewal, insurance premiums and estimated tax payments. Divide them by 12 to see the monthly cost.
Step 2: Estimate variable costs
Costs that rise and fall with sales:
- Materials and supplies
- Subcontractors
- Payment processing fees
- Fuel
- Sales commissions
Estimate them as a percentage of revenue, based on past jobs or industry averages.
Step 3: Estimate revenue realistically
Build revenue from the bottom up:
- How many customers or jobs per month?
- What's your average sale or project size?
- How does demand change by season?
Create three scenarios: conservative, expected and optimistic. Plan your spending around the conservative case.
Step 4: Include taxes and owner pay
- Set aside a percentage for taxes
- Decide how much you'll pay yourself and when
- Include Washington B&O and sales tax obligations
Step 5: Build a monthly view
Put everything in a simple 12-month spreadsheet:
| Jan | Feb | Mar | ... | |
|---|---|---|---|---|
| Revenue | ||||
| Variable costs | ||||
| Gross profit | ||||
| Fixed costs | ||||
| Net profit | ||||
| Owner pay | ||||
| Tax savings |
Step 6: Add a cash flow view
Add rows for when cash actually comes in and goes out, including loan principal, equipment purchases and deposits. Track your ending cash balance each month.
Step 7: Compare actual to budget monthly
When your books are closed each month, compare actual results to your budget:
- Where are you ahead or behind?
- Is the difference temporary or a trend?
- What needs to change?
Know your break-even point
Break-even revenue = fixed costs ÷ gross margin percentage. If your fixed costs are $4,000 a month and your gross margin is 50%, you need $8,000 in monthly revenue to break even.
The bottom line
A simple budget gives you a target; a forecast keeps you realistic. Build both from your actual books, and review them every month.
Need help getting this right? TRIG Bookkeeping & Tax Services helps new business owners in Washington with company registration, monthly and annual bookkeeping, and government compliance. Contact us to talk about your business.
This article is general information, not legal or tax advice for your situation. Tax rules and fees change, so confirm current details with the IRS, the Washington Department of Revenue, or a qualified professional.