business plan vs budget

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Updated: September 29, 2023 |

What’s the difference between a plan, a budget, and a forecast?

Jake Ballinger is an experienced SEO and content manager with deep expertise in FP&A and finance topics. He speaks 9 languages and lives in NYC.

“Remind me, what’s the difference between the plan and the forecast?” is something we often hear from executives looking for clarity.

While a company’s plan, budget, and financial forecast are often discussed in the boardroom, these terms’ functions are not always precise.

Finance leaders commonly use the three terms in conjunction with one another, allowing each model to inform the others. 

So...are they interchangeable? No.

In fact, financial forecasting, budgeting , and planning each serve a unique purpose. A plan serves as the foundation, a budget guides how to allocate cash, and a forecast projects the financial future of the business.

CFOs understand that each is a standalone piece of the company’s financial puzzle.

Jake Ballinger

FP&A Writer, Cube Software

Financial planning: explained

Budgeting: explained, forecasting: explained.

Plan vs. budget vs. forecast

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Generally, a financial “plan” aims to define the financial direction and vision of the organization within the context of a broader business plan.

Leaders ask themselves how the business will stack up in the next 1, 5, or even 10 years. The “plan” answers that question by outlining the company’s operational and financial objectives. Executives build out teams and infrastructure based on this plan and the defined goals. 

Colloquially, the “plan” is sometimes used interchangeably with the most recent budget or forecast, and can be broadly considered the budget or forecast that is the most likely “version of truth”.

Because of the long-term nature of a financial plan, it allows for more flexibility and creativity. In the case of a financial plan (versus a budget, for example), the means are less important than the end. Ultimately, a good financial plan provides a top-down operational framework to explore various scenarios.

Because an organization's future is undefined, financial planning is a perpetual process. Despite this, a plan is more static—more of a roadmap than a document updated daily. The plan relies on historical performance data and subjective financial analysis, so it can never be fully accurate. 

Businesses, but most commonly, the Finance team, compile a budget to determine how the company will spend its capital during the next period—a month or quarter, but typically a fiscal year.

The budget’s primary goal is determining what resources to allocate to each part of the company, from salaries to office supplies. The focus of a budget revolves around cash position, including expected revenues and expenses, to create specific financial goals for the foreseeable future.

Most businesses create a budget annually and implement it from the start of the fiscal year.  The budget is also commonly considered “unmovable” and is used to gauge performance of actuals or forecast data versus the planned budget.

A thorough budget offers clear guidance on how a company should be spending its resources by providing a line item for any expense imaginable. Budgets also create accountability for departmental spending because overages are apparent and gaps in appropriate funding become clear as the year unrolls.

Teams should review the budget regularly and compare it with actuals, making each department responsible for any variances that occur.

A budget aligns expectation with reality when it comes to revenue and expenses.

Budgeting can be a difficult process because of the kind of involvement it takes across departments, including meetings and negotiations with department leaders to determine the amount of cash they will need to accomplish business goals over the budget. Since budgets are generally made to last an entire year, a budget might constrain necessary spending (or saving) if any unexpected situations in cash flow arise.

Essentially, expense allowances are built not to exceed budget limits, while income projections are the minimum needed to balance the budget. Financial analysts need to calculate the variances between the two figures to evaluate the budget's efficacy and the organization's fiscal health.

A forecast is a financial snapshot of the future as it is best understood today.  When creating a forecast , teams must examine possible financial outcomes based on the most up-to-date drivers and assumptions . The result is a view of how the business is trending so that the leaders can determine whether or not adjustments should be made to the existing budgets or plans.  

For example, the budget might assume that the business will hit a $10M revenue target, but the forecast shows that the business is on target to only achieve $8M.  Given the difference between the forecast and the budget, the business might adjust the variable costs associated with lower revenue, while simultaneously adjusting the expense plan in order to hit cash targets.

A company’s financial forecast is updated regularly, such as monthly or quarterly. The forecast’s undefined nature allows it to be used for both short- and long-term projections and adapt to recent performance data. In this way, executives can make changes in real-time, adjusting their operations, such as production, marketing approach, and staffing. 

Forecasting can be a time-consuming process that not all businesses are able to stay on top of regularly.  Because of this, many businesses update their forecast data periodically, such as quarterly or biannually.  It’s considered a best practice to build a rolling (ongoing) forecast to make these adjustments in real-time.

Conclusion: Plan vs. budget vs. forecast

All three terms reflect expectations and estimates of financial objectives. Financial planning lays the foundation for budgeting, suggesting that a financial plan must precede the budget so that company leaders have an idea of what they are budgeting for. Meanwhile, a forecast projects how far over or under expectations a company may be.

A financial plan is a strategic, long-term tool, while a budget is tactical and short-term. A financial forecast is an updated reflection of the future. In a way, the forecast bridges the gap between the business plan and the budget. 

The most financially disciplined businesses leverage all three tools in planning and operations. Financial modeling software like Cube can help companies build multiple plan scenario types, including budgets, forecasts, and even what-ifs, in a way that allows leaders to visualize data, analyze past performance, and calculate how decisions may affect future goals.

Want to see how Cube can accelerate your financial planning? Get a demo today. 

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How to Master the Fine Art of Business Planning and Budgeting

Updated on: 5 January 2023

Starting a business is a challenging thing: you have to work hard and do your best to ensure its success. However, the work doesn’t end even when your business actually becomes operational. You still have to do so much more to ensure that it will keep on track.

Of course, it could be hard, especially for the beginners. It seems that you have to keep an eye on so many things and focus on so many urgent tasks every day that there isn’t any time left for business planning and budgeting. However, it is very important to find that time, because business planning and budgeting are actually one of the most important things for business success.

Why so? Because a plan allows you to get a better understanding of how you see your business, how you want to develop it, and so on. When you create a plan, you set targets that you want to achieve as well as define the ways of evaluating the success of your business.

Basically, planning gives you all the necessary tools that you can use to improve your business in the nearest future. However, this happens only when planning is done correctly.

What to Include in Your Annual Plan?

If you want to create a perfect business plan, you have to know what has to be included in it and how big it will be. Of course, there are no strict limitations to a size of a business plan as each business is different. However, if you are doing it for the first time, I recommend starting with a yearly plan: it is not too big and not too short.

A good annual plan has to include the following things:

• an executive summary
• a list of products and services you offer (or plan to offer this year)
• a detailed description of your target market
• a financial plan
• a marketing plan as well as a sales plan
• milestones and metrics
• a description of your management team

In order to write it in the best way possible, you need to spend some time thinking about the current status of your company as well as how it should look like by the end of the year. Describe your target market, think about the goals that have to be achieved this year, about the products and services that have to be launched.

Visualize the information to make it easier for you to see the whole picture (this is especially important for those, who don’t have much experience in planning). You can use charts, and different diagram types such as mind maps to visualize and organize your ideas and plans.

Try choosing a few main goals for your company and add them to the annual plan being as specific as possible: for example, if you want to increase your earnings, you should specify by how much (10%, 15%, etc.). It’s also good to think about the obstacles you might face and come up with some ways to minimize the potential risks that could occur.

Remember that while a business plan has to be specific and detailed when you write it, it shouldn’t remain static by the end of the year. No business is predictable enough for this to happen: you should understand it and prepare to act quickly, adding changes to a business plan if something unexpected happens.

Business Planning Cycle

As I said, typical business planning isn’t a static thing – actually, it’s a cycle that usually looks like this:

• You take some time to evaluate the effectiveness of your business. In order to do so, you should compare its current performance with the last year’s one – or with targets set earlier this year.
• Then you have to think about opportunities that might appear as well as the threats you might face.
• Remember about both successes and failures your business experienced throughout last year. Analyze them and think what can be done to repeat/avoid them.
• Think of the main business goals you would like to achieve and be sure to add them to the new annual plan (or edit the old one according to them).
• Create a budget.
• Come up with budget targets.
• Complete the plan.
• Be sure to review it regularly (every month, every three months, etc.), making changes if necessary.

Repeat the whole cycle.

Business Planning and Budgeting

When a business is still small and growing, it might seem unnecessary to plan its budget. However, it’s crucial if you want to avoid financial risks and be able to invest in opportunities when they appear.

Moreover, with the rapid growth of your business, you might find yourself in a situation where you aren’t able to control all the money anymore. Expansion of the business usually includes the creation of different departments responsible for different things – and each of these departments needs to have its own budget.

As you see, the bigger your business becomes, the more complicated it gets. While it’s okay to not control every cent by yourself, it is still up to you to make sure that your business keeps growing instead of becoming unprofitable. That’s why it’s so important to create a budget plan that allows you to understand the exact income your business brings by the end of the month and the amount of it, you are able to save or spend on different things.

It is important to remember that a business plan is not a forecast in any way. It doesn’t predict how much money you’ll make by the end of the year. Instead, it’s a tool for ensuring that your business will remain profitable even after covering all the necessary expenses.

Moreover, a business plan also ensures that you’ll have the opportunity to invest money into future projects, fund everything that has to be funded this year, and meet all of the business objectives.

Benefits of a Business Budget

The whole budget planning has a lot of benefits:

It allows you to evaluate the success of your business: when you know exactly how much profit your business gave you at the beginning of the year, you are able to compare it with the profit by the end of the year, understanding whether your financial goals have been met or not.

It allows managing money effectively: for example, if you save money for predicted one-time spends, you won’t be caught by surprise by them.

It helps identify the problems before they actually happen: for example, if you evaluate your budget and see that the income left after covering all the expenses is quite small, you’ll understand that you need to make more profit this year.

It helps make smarter decisions, by only investing money that you can afford to invest.

It allows you to manage your business more effectively, allocating more resources to the projects that need them the most.

It helps in increasing staff motivation.

Basically, when you have a budget plan ready, you have your back covered.

How to Create a Budget?

There are so many articles written on how to create a perfect business budget, but most of them narrow down to these 5 simple things:

• Evaluate your sources of income. You have to find out how much money your business brings on a daily basis in order to understand how much money you can afford to invest and spend.
• Make a list of your fixed expenses. These ones repeat every month and their amount doesn’t change. Some people forget to exclude the sum needed to cover these expenses from the monthly income, but it’s important to do so in order to get a clear understanding of your budget.
• Don’t forget about variable expenses. These ones don’t have a fixed price but still have to be paid every month. Come up with an approximate sum you’ll have to pay and include it in your budget.
• Predict your one-time expenses. Every business needs them from time to time, but if you plan your budget forgetting about these expenses, spending money on them could affect it greatly and not in a positive way.
• When you list all the income and expense sources, it’s time to pull them all together. Evaluate how much money you’ll have each month after you cover all these expenses. Then think of what part of that sum you could afford to invest into something.

While a whole process of budget creation might seem too complicated, you still should find time to do it. It’s totally worth the effort – moreover, such a plan could help you not only throughout the next month but also throughout the next year (if your expense and income sources won’t change much).

Of course, it’s still important to review it from time to time, making changes when necessary. However, the review process won’t be as complicated as the creation of a budget plan from scratch.

Key Steps in Drawing up a Budget

If you’ve never created a budget plan before, you could make some budgeting mistakes . However, when it comes to financial planning, the smallest mistake could have a negative impact. The following tips can help you easily avoid most mistakes, making your budget plan more realistic.

• Try to take it slow

The more time you spend on budgeting, the better it is for you. It’s hard to create a flawless budget plan quickly: there’s a big chance you might miss something. That’s why it’s vital to make sure that you’ve listed all the sources of your income and expenses, and are prepared well.

• You can use last year’s data

Last year’s data could help you see the whole picture better: you can compare it with this year’s data, finding out whether your income has increased or decreased. However, you should use it only for comparing and as a guide. You have new goals and resources this year, and the environment you’re working in has changed too, so your current planning and strategies should differ from the ones you used last year.

• Make sure that a budget is realistic

The most important thing about a budget plan is that it has to cover not only predictable expenses but also less predictable ones. Of course, making predictions is hard but using previous data along with some other business plans as examples could make the whole process easier.

A budget also has to be detailed: the information it contains has to allow you to monitor all the key details of your business, be it sales, costs, and so on. You could also use some accounting software for more effective management.

• It’s okay to involve people

If your business is big enough, you probably have some employees responsible for a part of the financial operations. It’s good to involve them in a budget creation process too, using their knowledge and experience to predict some expenses, for example. If the people you involve are experienced enough, the combination of their professionalism and your knowledge will make a budget more realistic and effective.

• Visualizing helps

Various charts and diagrams are so popular in business for a reason: they allow tracking your incomes and expenses easily. For example, you can create one chart based on your plan and another chart based on an actual budget and compare them during planned revisions to see whether your budget plan works just as expected or not.

As I mentioned above, it’s easier to control finances when you are running a small business. Such business needs only one budget that is created for a certain period – in most cases, for a year. Larger businesses, however, require something else. They have various departments, so it is better to create several budgets at once, tailoring each of them to a certain department’s needs.

Don’t Forget to Review!

I’ve already mentioned that a review is an important process of every business planning and budgeting. No matter how good your plan is, it is impossible to predict everything with 100 percent accuracy. Your business will grow and the environment around it will change, so the quicker you’ll react to such changes, the better it is for you.

That’s why you should schedule budget reviews from time to time. I recommend starting with reviewing it every month and then switching to a more comfortable schedule. Every month review can help you notice the flaws of your plan (which is especially important if you don’t have much experience in this kind of thing) as well as understand how stable your business is.

If you see that you don’t have to make changes often, you could start reviewing your plan every three or six months (however, I recommend doing it more often).

You can use various common diagrams to help you . The best thing about diagrams is that they help visualize data well, which is very important when you need to see the whole picture more clearly – and this happens often during budget planning. For example, a diagram or a chart of your company’s income can show you how much your finances have grown during a certain period. Moreover, if you notice certain downfalls in a chart (that aren’t predicted), you’ll be able to react to it quickly, fixing things that went wrong.

What do you need to consider during the whole review process? First, your actual income. Probably it will be different each month: every business has its own peak sales periods and drop sales ones, and you have to find them and remember them for more effective planning next year. It is important to check whether the income matches the one you predicted or not: if not, you have to find out why it happened.

Second, you have to evaluate your actual expenses. See if they differ from your budget, how much do they affect it, why they exceed your expectations (if they do), and so on.

Probably the best thing about reviewing is that it allows you to react to all the unexpected situations quickly, saving your business from the potential troubles and downfalls. So be sure not to skip it.

As you see, writing a business plan is a complex process. You have to be very attentive, to plan everything, starting with your goals and ending with your expenses, to consider so many things and to involve other people in planning if possible. Moreover, you also have to learn all the time, reviewing your plans, making changes, finding the ways to react to unexpected situations.

But while this might look like a tough thing to do, it is very convenient for everyone who wants to manage their business successfully. The planning takes a lot off your shoulders and makes the whole business running process easier. You are able to evaluate the effectiveness of your business by looking at the monthly income increase, at the goals you wanted to achieve, and so on. You are also able to predict the potential downfalls of your business and to use the tools you have to minimize all the risks.

You are able to evaluate the effectiveness of your business by looking at the monthly income increase, at the goals you wanted to achieve, and so on. You are also able to predict the potential downfalls of your business and to use the tools you have to minimize all the risks.

I hope that this guide will help you create strong and realistic budget and business plans, and successfully implement them in running your business. If you have some tips on business and budget planning that you want to share, please do so in the comment section below!

Author’s Bio:

Kevin Nelson started his career as a research analyst and has changed his sphere of activity to writing services and content marketing. Apart from writing, he spends a lot of time reading psychology and management literature searching for the keystones of motivation ideas. Feel free to connect with him on Facebook , Twitter , Google+ , Linkedin .

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

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What Is a Business Budget?

Definition & Examples of a Business Budget

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

How a Business Budget Works

Do i need a business budget, example of a business budget template.

A business budget estimates an organization's revenue and expenses over a specific period of time.

Learn more about how a business budget works and get an example of one.

A business budget provides an accurate picture of expenditures and revenues and should drive important business decisions such as whether to increase marketing, cut expenses, hire staff, purchase equipment, and improve efficiencies in other ways. It also outlines your organization's financial and operational goals, so it may be thought of as an action plan that helps you allocate resources, evaluate performances, and formulate plans.

The basic process of planning a budget involves listing your business's fixed and variable costs on a monthly basis and then deciding on the allocation of funds to reflect goals.

Businesses often use special types of budgets to assess specific areas of operation. A cash flow budget, for example, projects your business's cash inflows and outflows over a certain period of time. Its main use is to predict your business's ability to take in more cash than it pays out.

Most businesses have fixed costs that are independent of sales revenue, such as:

• Building or office eases or mortgage costs 
• Loan payments (if using debt financing )
• Vehicle leases (or loan payments if the vehicle is purchased)
• Equipment (machinery, tools, computers, etc.)
• Payroll (if employees are on salary)
• Utilities such as landline phone and internet charges 

Variable costs increase or decrease according to the level of business activity. Examples include:

• Contractors ' wages or commissions (for salespeople)
• Utilities such as electricity, gas, or water that increase with activity 
• Raw materials
• Shipping and delivery costs
• Advertising (can be fixed or variable)
• Maintenance and repair of equipment

It is important to be realistic with your budget projections. If in doubt, be conservative and overestimate your expenses and underestimate your revenues. It is particularly difficult if you are starting a new business and have no previous year's budget figures to guide your estimates. In this case, it is typically much easier to estimate expenses than revenues.

As the budget year progresses the estimates should be updated monthly with actual figures, enabling you to check the accuracy of your forecasts. Note that there often are radical differences between actual and projected revenues and expenses due to unforeseen business circumstances and/or changing business and economic cycles, such as:

• Gaining or losing a major client
• Having to purchase or replace expensive equipment
• An increase in rent
• Hiring employees
• An increase in competition
• Changes in the tax code

If you own a business, then you need a budget.

A budget is an essential part of a  business plan and is necessary for starting a new business . It plays an important role in determining your start-up and operating costs. Once your business is established, budgeting becomes a regular task that normally occurs on a quarterly or annual basis.

Without a budget, you may not know how your business is performing.

Having a comprehensive budget is a requirement for obtaining business loans from financial institutions or seeking equity funding from investors .

A simple business budget template includes expenses common to most small businesses. You can use and modify a template as required to suit your own business, filling out your own information where applicable. Your completed budget might look something like this:

Many budgets also include actual figures going back several quarters or years as a comparison for what is being projected for the upcoming quarter or year. Most accounting software has options for budgeting/forecasting.

Key Takeaways

• A business budget estimates an organization's revenue and expenses over a specific period of time and drives important business decisions. 
• Businesses often use special types of budgets to assess specific areas of operation. 
• Budgets help companies understand start-up and operating costs and track performance.
• Most budgets include fixed and variable income and expenses.

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How to create a business budget

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Key takeaways

• A business budget is a financial plan that helps estimate a company's revenue and expenses, making it an essential tool for small businesses
• The steps to creating a business budget include choosing budget and accounting software, listing expenses and forecasting revenue
• If a business finds itself in a budget deficit, strategies such as cutting costs, negotiating with suppliers and diversifying revenue streams can help

As a small business owner, keeping your finances organized through a business budget is crucial to running a successful company.

Business budgeting involves creating a financial plan that estimates future revenue and expenses to make informed financial decisions, which can ultimately move the needle on your business’s financial goals and help it grow in profitability.

What is a business budget?

A business budget is a financial plan that outlines the company’s current revenue and expenses. The budget also forecasts expected revenue that can be used for future business activities, such as purchasing equipment. It sets targets for your business’s revenue, expenses and profit and helps you determine if you’ll have more money coming in than you pay out.

A business budget is an essential tool that helps you make wise business decisions. Without it, it’s difficult to gauge your business’s financial health.

What is the difference between a cash flow statement and a business budget?

A cash flow statement  (CFS) is a financial document that summarizes the movement of cash coming in and going out of a company. The CFS gauges how effectively a company manages its finances, including how it manages debt responsibilities and funds day-to-day operations.

It’s similar to a business budget in that you can see expenses and revenue. But while a budget gives a moment-in-time snapshot of your business’s financial performance compared to forecasts, the cash flow statement focuses on the actual inflows and outflows of money through your business.

Follow these steps to ensure a well-developed budget, from understanding your expenses to generating revenue and adjusting expenses to balance the budget.

1. Choose a budget and accounting software

First, you’ll want to store your expense and revenue information with accounting software to help you track your numbers and generate reports. Some software may also help you assign categories to the transactions, identify tax deductions and file taxes. Quickbooks is an example of accounting software.

Some business bank accounts also have accounting software built in, helping you stay organized by keeping your accounting and banking in one place.

2. List your business expenses

The next step in creating a small business budget is to list all your business expenses. Here are the types of expenses you want to include in your budget:

• Fixed expenses: Fixed expenses cost a fixed amount monthly or within the assessed period. Those costs include rent, insurance, salaries and loan payments.
• Variable expenses: Variable expenses can change monthly or over time, making them trickier to budget. This might include materials, direct labor, utility bills or marketing expenses.
• Annual or one-time costs: Some costs only occur a few times per year, while others you’ll only pay for as needed, such as buying new equipment. You still want to budget for these expenses by allocating a portion of your weekly or monthly budget toward one-time expenses.
• Contingency funds: Unexpected business costs can throw a wrench in your budget if not planned for. Such costs could include emergency repairs, necessary equipment purchases, sudden tax increases or unforeseen legal fees. To plan for these costs, you can create a contingency or emergency fund that’s separate from your operational budget.
• Maintenance costs: To allocate funds for maintenance costs, begin by including regular inspections and maintenance in your budget. Then, make sure to leave room for changes and unexpected maintenance costs.

3. Forecast your revenue

To estimate your future revenue, start by deciding on a timeline for your forecast. A good place to start is the previous 12 months. Your accounting software may also include revenue forecasting as one of its features, which can automate this step for you.

The timeline and your recent past growth can help you understand how much revenue you’ll generate in the future. Consider external factors that could drive revenue growth, such as planned business activities like expansion, marketing campaigns or new product launches.

You’ll also want to think about anything that might slow your growth. Many businesses experience seasonal fluctuations, which can impact your budget if you don’t plan for it. To account for these changes, list the minimum expenses required to keep your business running. Use your financial statements to understand these costs, and consider averaging out irregular expenses over the year to avoid surprises.

Ideally, your business should build a cash reserve during profitable periods to cover expenses during slower seasons. If necessary, consider various financing options, such as a business credit card or line of credit, that you can draw from to manage cash flow during peak or off times.

4. Calculate your profits

The next step in creating a business budget is to calculate your business profits. You can look at your total profits by calculating revenue minus expenses. That way, you see how much money you have to work with, called your working capital .

You should also understand your profit margins for each of your products and services, which can help you set prices or decide whether to offer a new product or service.

How to calculate your profit margins

To find out your gross profit margin, you’ll first need to calculate the gross profit. To calculate your business’s gross profit, subtract the cost of goods sold (COGS) from your total revenue. COGS includes all the expenses related to producing your products and services.

Once you have the gross profit, use the gross profit margin formula: (Revenue – COGS) / Revenue x 100. This will give you a percentage that shows how much profit you gain from that particular product after accounting for the product’s costs.

5. Make a strategy for your working capital

Knowing what to do with extra revenue, which is your working capital, is crucial for managing your business finances and growth. Here’s how to get started with a financial strategy that propels your business goals forward:

• Set spending limits for different categories in your budget. When listing your expenses, you should have set a dollar amount for each category. You can estimate this by a monthly average or a general forecasted amount.
• Set realistic short- and long-term goals. These goals will motivate you to stick to your budget and guide your spending decisions.
• Compare your actual spending with your net income and priorities. Look at the areas you’re spending and consider whether you need to reallocate money to different categories. Consider separating expenses into business needs and extras.
• Adjust your budget and actual spending. Adjust your spending to ensure you do not overspend and can allocate money towards your goals. If you need to cut spending, consider the categories that are extras, such as types of marketing that you don’t know will generate a return on investment.

6. Review your budget and forecasts regularly

Finally, review your budget regularly. By frequently checking in on your budget, you can identify any discrepancies between your planned and actual expenses and adjust accordingly. This allows you to proactively handle any financial issues that may arise rather than reacting to them after they’ve become a problem.

Regular reviews also allow you to refine your budgeting process and improve its accuracy over time. Keep in mind that your budget is not set in stone but rather a tool to guide your financial decisions and help you achieve your business goals.

What to do if you have a deficit in your business budget

Finding a deficit in your small business budget can be alarming, but there are several strategies you can employ to handle this situation.

• Do a cash flow analysis. Begin by doing a cash flow analysis to review what your business is earning and spending money on. Identify potential problems and adjust the budget as needed to prevent overspending.
• Cut nonessential business costs. Cutting spending may involve eliminating nonessential costs and transferring funds from other categories to overspent categories. Your goal is a balanced or profitable budget.
• Negotiate with suppliers. Be transparent in your communications with suppliers and explain your quality standards and why you’re seeking cost reduction. Explore options for cost reduction that do not compromise quality, such as process improvements or ordering in larger quantities.
• Create a lean business model. By removing anything that doesn’t benefit your customer, your business can potentially save time and resources. Lean business models focus on continually improving processes and customer experience without adding additional resources, time or funds.
• Add revenue and diversify revenue streams. Raising revenue requires a realistic plan with measurable goals to increase sales and overall business income. You can also consider other products and services you could offer that would make your business profitable.
• Use financing to cover temporary gaps. Applying for a small business loan can help pay bills during an unplanned shortfall. Since this will add an expense to your budget, make sure you can handle the loan repayments and your regular expenses.
• Plan for a deficit. In some cases, a planned budget deficit might be a strategic decision, such as investing in new opportunities that promise long-term benefits.

Bottom line

Having a well-developed business budget is crucial for making informed decisions. You can effectively manage your small business’s finances by tracking and analyzing your business’s inflows and outflows, forecasting your expected revenue and adjusting your budget to stay balanced.

Even in the face of a budget deficit, there are various strategies you can use to keep your business profitable, including negotiating costs with your suppliers, assessing your business operations and offering new products and services.

With a solid business budget in place, you can confidently navigate financial challenges and drive long-term success for your small business.

Frequently asked questions

What are the benefits of a business budget, what are the components of a business budget, how do you calculate fixed and variable costs in a business budget, related articles.

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Planning, budgeting and forecasting is typically a three-step process for determining and mapping out an organization’s short- and long-term financial goals.

• Planning  provides a framework for a business’ financial objectives — typically for the next three to five years.
• Budgeting  details how the plan will be carried out month to month and covers items such as revenue, expenses, potential cash flow and debt reduction. Traditionally, a company will designate a fiscal year and create a budget for the year. It may adjust the budget depending on actual revenues or compare actual financial statements to determine how close they are to meeting or exceeding the budget.
• Forecasting  takes historical data and current market conditions and then makes predictions as to how much revenue an organization can expect to bring in over the next few months or years. Forecasts are usually adjusted as new information becomes available. 

The process is usually managed by a chief financial officer (CFO) and the finance department. However, the definition can be expanded to include all areas of organizational planning including: financial planning and analysis , supply chain planning , sales planning , workforce planning and marketing planning .

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Basic business accounting practices date as far back as the 1400s, when Venetian investors kept track of their Asian trade expeditions using double-entry bookkeeping, income statements and balance sheets. The word “budget” is from the old French word “bougette,” meaning “small purse.” The British government began to use the phrase “open the budget” in the mid-1700s, when the chancellor presented the annual financial statements. Businesses began to regularly use the term “budget” for their finances by the late 1800s.

Modern business forecasting began in response to the economic devastation of the Great Depression of the 1930s. New types of statistics and statistical analyses were developed that could help business better predict the future. Consulting firms emerged to help companies use these new prediction tools.

Accounting and forecasting were difficult in the early 20th century because they depended on laborious hand-written equations, ledgers and spreadsheets. The emergence of mainframe computers in the 1960s and personal computers in the 1980s sped up the process. Software applications such as Microsoft Excel became widely popular for financial reporting. However, Excel programs and spreadsheets were prone to input errors and cumbersome when various departments or individuals needed to collaborate on a report.

By the start of the 2000s, companies gained access to ever-growing operational data sources, as well as information outside corporate transaction systems — such as weather, social sentiment and econometric data. The vast amounts of available data for forecasting created a need for more sophisticated software tools to process it.

Numerous planning software packages emerged to handle this data complexity, making planning, budgeting and forecasting faster and easier — both for processing and collaboration. With predictive insights drawn automatically from data, companies could identify evolving trends and guide decision making with foresight, not just hindsight.

Today, cloud-based systems are becoming the standard, providing more flexibility, security and cost savings — helping organizations generate accurate predictions and budgets with fewer errors.

But despite these advancements, businesses are still quite dependent on traditional spreadsheets. 1   Seventy percent of businesses say they rely heavily on spreadsheet reporting, with only 16 percent using on-premise specialist software — and only ten percent using cloud software for planning.

Many businesses still base their strategy on annual plans and budgets, which is a management technique developed over a century ago. But in today’s more competitive environment, organizations are realizing that plans, budgets and forecasts need to reflect current reality — not the reality of two, three or more quarters ago. Continuous planning and rolling forecasts are becoming widely used methodologies to update plans, budgets and forecasts frequently throughout the year, on a quarterly or even monthly basis. These approaches help managers spot trends before their competitors — helping them make better informed, more agile decisions about pricing, product mix, capital allocations and even staffing levels.

Creating and implementing a sound planning, budgeting and forecasting process helps organizations establish more accurate financial report and analytics — potentially leading to more accurate forecasting and ultimately revenue growth. Its importance is even more relevant in today’s business environment where disruptive competitors are entering even the most tradition-bound industries.

When companies embrace data and analytics in conjunction with well-established planning and forecasting best practices, they enhance strategic decision making and can be rewarded with more accurate plans and more timely forecasts. Overall, these tools and practices can save time, reduce errors, promote collaboration and foster a more disciplined management culture that delivers a true competitive advantage.

Specifically, companies are able to:

• Quickly update plans and forecasts in response to new threats and opportunities, identifying risk areas early enough to rectify issues before they are serious.
• Identify and analyze the impact of changes as they occur.
• Strengthen the links between operational and financial plans.
• Better plan and predict cash flows.
• Improve communication and collaboration among plan contributors.
• Consistently deliver timely, reliable plans and forecasts, plus contingency plans, for a range of possible events.
• Analyze variances and deviations from plans and promptly take corrective action.
• Create a budget specifically for growth and having confidence in how much can be spent.
• More accurately manage sales pipelines while tracking performance against targets.
• Make more confident strategic decisions based on hard data, instead of hopes or guesswork.
• Provide evidence of an organization’s future trajectory to potential investors and lending institutions based on multiple data sources and sophisticated analysis.

Budgeting, planning and forecasting software can be purchased as an off-the-shelf solution or as part of a larger integrated corporate performance management (CPM) solution.

Advanced software solutions enable organizations to:

• Measure and monitor performance through interactive, self-service dashboards and visualizations.
• Examine root-causes with high-fidelity analysis of dimensionally rich data.
• Evaluate trends and make predictions automatically from internal or external data.
• Perform rapid what-if scenario modelling and create timely, reliable plans and forecasts.

Planning is easier and more effective when practitioners follow well-established best practices. Software solutions that support these practices can enhance the timeliness and reliability of information and increase participation by key people throughout the organization; especially those at the front lines.

Leading companies have moved to solutions that address the full planning cycle — data collection, modeling, analytics and reporting — on a common planning platform with lean infrastructure requirements. Such platforms can handle a diverse range of business functions, from budget-focused finance tasks to, for example, supply chain-focused planning for retail environments with thousands of SKUs (stock keeping units).

Companies like IBM offer holistic, integrated software solutions to streamline the planning, budgeting and forecasting process. The logic is that to adapt to today's quickly changing business conditions, an organization needs one solution that creates a single source of truth and visibility into all its data. These solutions can extend well beyond the financial aspects of the business, becoming a powerful forecasting engine across the enterprise. With these agile planning and exploratory analytics software solutions — whether in the cloud or on-premises — companies can perform planning, budgeting and forecasting with greater speed, agility and foresight.

Evaluating and selecting planning, budgeting and forecasting software is a complex task. It requires careful consideration of the software’s functionality, its value to the planning process and its ability to support planning best practices. There are also factors such as vendor reliability and support, user community connections and commitment to customer success once the sale is complete.

IBM Analytics  recently published a guide to help organizations evaluate planning, budgeting and forecasting software — identifying key qualities to look for:

• Adaptive . Can you rapidly change models and re-forecast frequently, based on input from business units? Can you update plans as often as necessary?
• Timely . Is your information always current because users contribute directly to a central planning database? Are your consolidations and rollups done automatically to easily meet deadlines?
• Integrated . Do your planning, analysis, workflow and reporting functions reside on one common platform, reducing the need to maintain “shadow” planning systems?
• Collaborative . Is your solution web-based? Does it enable participation anytime, from anywhere with a secure connection?
• Self-service . Are users able to access data and perform complex analysis without the assistance of IT? Are you able to use a familiar spreadsheet interface for faster user adoption and accelerate time to value?
• Enterprise-scale data capacity . Is your solution capable of handling very large data volumes without limiting cube size? Some solutions do not handle “data sparsity” well — forcing data to be split into multiple cubes for analysis, causing version control issues.
• Efficient . Are your managers able to spend less time managing data and more time managing the business?
• Relevant . Do you have the ability to customize views for different user roles, to help increase adoption and process ownership? Do you have formula capabilities that enable modeling of all relevant business drivers?
• Accurate . Do your plans contain errors because of broken links, stale data, improper rollups and missing components?

The key is not just evaluating product features and capabilities, but also evaluating how those features will be implemented by different users within the organization. It’s important to test any planning solution that will be used by a large variety of stakeholders such as finance, operations, HR and sales.

Discover how one of the largest operators of parking facilities in the Middle East used IBM Planning Analytics to deliver better automation and multidimensional analytical power along with cost advantages.

Learn how the real estate developer enhanced its core planning, forecasting and project management capabilities with IBM technology to drive even greater profitability.

Find out how the company used IBM planning analytics to provide monthly and weekly reporting for engineering, marketing, sales and operations.

IBM Planning Analytics provides a single solution to automate planning, budgeting and forecasting for your enterprise.

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Discover the benefits of embracing data and analytics in conjunction with well-established planning and forecasting best practices.

See how you can synthesize information, uncover trends and deliver insights to improve decision making throughout the enterprise.

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1 The Future of Planning, Budgeting and Forecasting Global Survey, Workday and FSN, 2017  (link resides outside ibm.com)

The Best Free Business Budget Templates

Published: October 12, 2023

Business budgets are a source of truth for your income and expenses. That includes all the money you spend — from A/B testing your marketing campaigns to your monthly office rent.

While organizing the numbers may sound difficult, using a business budget template makes the process simple. Plus, there are thousands of business budget templates for you to choose from.

We’ll share seven budget templates that can help organize your finances. But first, you’ll learn about different types of business budgets and how to create one.

What is a Business Budget?

A business budget is a spending plan that estimates the revenue and expenses of a business for a period of time, typically monthly, quarterly, or yearly.

The business budget follows a set template, which you can fill in with estimated revenues, plus any recurring or expected business expenses.

For example, say your business is planning a website redesign. You'd need to break down the costs by category: software, content and design, testing, and more.

Having a clear breakdown will help you estimate how much each category will cost and compare it with the actual costs.

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Types of Budgets for a Business

Master budget, operating budget, cash budget, static budget, departmental budget, capital budget, labor budget, project budget.

Business budgets aren’t one size fits all. In fact, there are many different types of budgets that serve various purposes. Let’s dive into some commonly used budgets:

Think of a master budget as the superhero of budgets — it brings together all the individual budgets from different parts of your company into one big, consolidated plan. It covers everything from sales and production to marketing and finances.

It includes details like projected revenues, expenses, and profitability for each department or business unit. It also considers important financial aspects like cash flow, capital expenditures, and even creates a budgeted balance sheet to show the organization's financial position.

The master budget acts as a guide for decision-making, helps with strategic planning, and gives a clear picture of the overall financial health and performance of your company. It's like the master plan that ties everything together and helps the organization move in the right direction.

Your operating budget helps your company figure out how much money it expects to make and spend during a specific period, usually a year. It not only predicts the revenue your business will bring in, but also outlines expenses it will need to cover, like salaries, rent, bills, and other operational costs.

By comparing your actual expenses and revenue to the budgeted amounts, your company can see how it's performing and make adjustments if needed. It helps keep things in check, allowing your business to make wise financial decisions and stay on track with its goals.

Free Business Budget Templates

Manage your business, personal, and program spend on an annual, quarterly, and monthly basis.

• Personal Budget Template
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A cash budget estimates the cash inflows and outflows of your business over a specific period, typically a month, quarter, or year. It provides a detailed projection of cash sources and uses, including revenue, expenses, and financing activities.

The cash budget helps you effectively manage your cash flow, plan for cash shortages or surpluses, evaluate the need for external financing, and make informed decisions about resource allocation.

By utilizing a cash budget, your business can ensure it has enough cash on hand to meet its financial obligations, navigate fluctuations, and seize growth opportunities.

A static budget is a financial plan that remains unchanged, regardless of actual sales or production volumes.

It’s typically created at the beginning of a budget period and doesn’t account for any fluctuations or changes in business conditions. It also assumes that all variables, such as sales, expenses, and production levels, will remain the same throughout the budget period.

While a static budget provides a baseline for comparison, it may not be realistic for businesses with fluctuating sales volumes or variable expenses.

A departmental budget focuses on the financial aspects of a specific department within your company, such as sales, marketing or human resources.

When creating a departmental budget, you may look at revenue sources like departmental sales, grants, and other sources of income. On the expense side, you consider costs such as salaries, supplies, equipment, and any other expenses unique to that department.

The goal of a departmental budget is to help the department manage its finances wisely. It acts as a guide for making decisions and allocating resources effectively. By comparing the actual numbers to the budgeted amounts, department heads can see if they're on track or if adjustments need to be made.

A capital budget is all about planning for big investments in the long term. It focuses on deciding where to spend money on things like upgrading equipment, maintaining facilities, developing new products, and hiring new employees.

The budget looks at the costs of buying new stuff, upgrading existing things, and even considers depreciation, which is when something loses value over time. It also considers the return on investment, like how much money these investments might bring in or how they could save costs in the future.

The budget also looks at different ways to finance these investments, whether it's through loans, leases, or other options. It's all about making smart decisions for the future, evaluating cash flow, and choosing investments that will help the company grow and succeed.

A labor budget helps you plan and manage the costs related to your employees. It involves figuring out how much your business will spend on wages, salaries, benefits, and other labor-related expenses.

To create a labor budget, you'll need to consider factors like how much work needs to be done, how many folks you'll need to get it done, and how much it'll all cost. This can help your business forecast and control labor-related expenses and ensure adequate staffing levels.

By having a labor budget in place, your business can monitor and analyze your labor costs to make informed decisions and optimize your resources effectively.

A project budget is the financial plan for a specific project.

Let's say you have an exciting new project you want to tackle. A project budget helps you figure out how much money you'll need and how it will be allocated. It covers everything from personnel to equipment and materials — basically, anything you'll need to make the project happen.

By creating a project budget, you can make sure the project is doable from a financial standpoint. It helps you keep track of how much you planned to spend versus how much you actually spend as you go along. That way, you have a clear idea of whether you're staying on track or if there are any financial challenges that need attention.

How to Create a Business Budget

While creating a business budget can be straightforward, the process may be more complex for larger companies with multiple revenue streams and expenses.

No matter the size of your business, here are the basic steps to creating a business budget.

1. Gather financial data.

Before you create a business budget, it’s important to gather insights from your past financial data. By looking at things like income statements, expense reports, and sales data, you can spot trends, learn from past experiences, and see where you can make improvements.

Going through your financial history helps you paint a true picture of your income and expenses. So, when you start creating your budget, you can set achievable targets and make sure your estimates match what's actually been happening in your business.

2. Find a template, or make a spreadsheet.

There are many free or paid budget templates online. You can start with an already existing budget template. We list a few helpful templates below.

You may also opt to make a spreadsheet with custom rows and columns based on your business.

3. Fill in revenues.

Once you have your template, start by listing all the sources of your business’ income. With a budget, you’re planning for the future, so you’ll also need to forecast revenue streams based on previous months or years. For a new small business budget, you’ll rely on your market research to estimate early revenue for your company.

When you estimate your revenue , you're essentially figuring out how much money you have to work with. This helps you decide where to allocate your resources and which expenses you can fund.

4. Subtract fixed costs for the time period.

Fixed costs are the recurring costs you have during each month, quarter, or year. Examples include insurance, rent for office space, website hosting, and internet.

The key thing to remember about fixed costs is that they stay relatively stable, regardless of changes in business activity. Even if your sales decrease or production slows down, these costs remain the same.

However, it's important to note that fixed costs can still change over the long term, such as when renegotiating lease agreements or adjusting employee salaries.

5. Consider variable costs.

Variable costs will change from time to time. Unlike fixed costs, variable costs increase or decrease as the level of production or sales changes.

Examples include raw materials needed to manufacture your products, packaging and shipping costs, utility bills, advertising costs, office supplies, and new software or technology.

You may always need to pay some variable costs, like utility bills. However, you can shift how much you spend toward other expenses, like advertising costs, when you have a lower-than-average estimated income.

6. Set aside time for business budget planning.

Unexpected expenses might come up, or you might want to save to expand your business. Either way, review your budget after including all expenses, fixed costs, and variable costs. Once completed, you can determine how much money you can save. It’s wise to create multiple savings accounts. One should be used for emergencies. The other holds money that can be spent on the business to drive growth.

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How to manage a business budget.

There are a few key components to managing a healthy business budget.

Budget Preparation

The process all starts with properly preparing and planning the budget at the beginning of each month, quarter, or year. You can also create multiple budgets, some short-term and some long-term. During this stage, you will also set spending limits and create a system to regularly monitor the budget.

Budget Monitoring

In larger businesses, you might delegate budget tracking to multiple supervisors. But even if you’re a one-person show, keep a close eye on your budget. That means setting a time in your schedule each day or week to review the budget and track actual income and expenses. Be sure to compare the actual numbers to the estimates.

Budget Forecasting

With regular budget tracking, you always know how your business is doing. Check in regularly to determine how you are doing in terms of revenue and where you have losses. Find where you can minimize expenses and how you can move more money into savings.

Why is a Budget Important for a Business?

A budget is crucial for businesses. Without one, you could easily be drowning in expenses or unexpected costs.

The business budget helps with several operations. You can use a business budget to keep track of your finances, save money to help you grow the business or pay bonuses in the future, and prepare for unexpected expenses or emergencies.

You can also review your budget to determine when to take the next leap for your business. For example, you might be dreaming of a larger office building or the latest software, but you want to make sure you have a healthy net revenue before you make the purchase.

Best Free Business Budget Templates

1. marketing budget template.

Knowing how to manage a marketing budget can be a challenge, but with helpful free templates like this marketing budget template bundle , you can track everything from advertising expenses to events and more.

This free bundle includes eight different templates, so you can create multiple budgets to help you determine how much money to put toward marketing, plus the return on your investment.

2. Small Business Budget Template

For small businesses, it can be hard to find the time to draw up a budget, but it’s crucial to help keep the business in good health.

Capterra offers a budget template specifically for small businesses. Plus, this template works with Excel. Start by inputting projections for the year. Then, the spreadsheet will project the month-to-month budget. You can input your actual revenue and expenses to compare, making profits and losses easy to spot.

3. Startup Budget Template

What if you don’t have any previous numbers to rely on to create profit and expense estimates? If you are a startup, this Gusto budget template will help you draw up a budget before your business is officially in the market. This will help you track all the expenses you need to get your business up and running, estimate your first revenues, and determine where to pinch pennies.

4. Free Business Budget Template

You might be familiar with Intuit. Many companies, big and small, rely on Intuit’s services like Quickbooks and TurboTax. Even if you don’t use the company’s paid financial services, you can take advantage of Intuit’s free budget template , which works in Google Sheets or Excel.

It features multiple spreadsheet tabs and simple instructions. You enter your revenue in one specific tab and expenses in another. You can also add additional tabs as needed. Then, like magic, the spreadsheet uses the data in the income and expense tabs to summarize the information. This template can even determine net savings and the ending balance.

5. Department Budget Sheet

A mid- to large-size company will have multiple departments, all with different budgetary needs. These budgets will all be consolidated into a massive, company-wide budget sheet. Having a specific template for each department can help teams keep track of spending and plan for growth.

This free template from Template.net works in either document or spreadsheet formats. This budget template can help different departments keep track of their income and spending.

6. Project Budget Template

Every new project comes with expenses. This free budget template from Monday will help your team estimate costs before undertaking a project. You can easily spot if you're going over budget midway through a project so you can adjust.

This template is especially useful for small companies that are reporting budgets to clients and for in-house teams getting buy-in for complex projects.

7. Company Budget Template

Want to keep track of every penny? Use this template from TemplateLab to draw up a detailed budget. The list of expenses includes fixed costs, employee costs, and variable costs. This business template can be especially useful for small businesses that want to keep track of expenses in one, comprehensive document.

Create a Business Budget to Help Your Company Grow

Making your first business budget can be daunting, especially if you have several revenue streams and expenses. Using a budget template can make getting started easy. And, once you get it set up, these templates are simple to replicate.

With little planning and regular monitoring, you can plan for the future of your business.

Editor's note: This post was originally published in September 2021 and has been updated for comprehensiveness.

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The Best Free Business Budget Worksheets

6 templates to manage your business, personal, and program spend on an annual, quarterly, and monthly basis.

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What Is a Budget?

Understanding budgeting, how to budget in 7 steps, corporate budgets, personal budgets, first steps in building a budget, how to build a complete budget, sticking to a budget.

• Ways to Budget When Broke
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The Bottom Line

• Budgeting & Savings

What Is a Budget? Plus 10 Budgeting Myths Holding You Back

The term budget refers to an estimation of  revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for any entity that wants to spend money, including governments and businesses, along with people and households at any income level.

To manage your monthly expenses, prepare for life's unpredictable events, and be able to afford big-ticket items without going into debt, budgeting is important. Keeping track of how much you earn and spend doesn't have to be drudgery, doesn't require you to be good at math, and doesn't mean you can't buy the things you want. It just means that you'll know where your money goes, and you'll have greater control over your finances.

Key Takeaways

• A budget is an estimation of revenue and expenses over a specified future period of time and is utilized by governments, businesses, and individuals at any income level.
• A budget is basically a financial plan for a defined period, normally a year that is known to greatly enhance the success of any financial undertaking.
• Corporate budgets are essential for operating at peak efficiency.
• Aside from earmarking resources, a budget can also aid in setting goals, measuring outcomes, and planning contingencies.
• Personal budgets are extremely useful in managing an individual's or family's finances over both the short and long-term horizon.

Investopedia / Julie Bang

A budget is a microeconomic concept that shows the trade-off made when one good is exchanged for another. In terms of the bottom line—or the end result of this trade-off—a surplus budget means profits are anticipated, a balanced budget means revenues are expected to equal expenses, and a deficit budget means expenses will exceed revenues.

The specifics of your budget will depend on your personal financial situation and goals. In most cases, though, the steps for creating a budget are the same. You can make a budget by following seven simple steps.

• Add up your total income . This should include all sources, such as a paycheck, tips, Social Security, disability, alimony, or investment income.
• Track your spending. Spend a month keeping track of everything you spend, whether you pay with a credit card or cash, to find what your real expenses are. Be sure to include automatic payments, subscriptions, and utilities.
• Set financial goals. Do you want to save money? Pay off debt? Stop overspending? Decide on realistic goals. Remember, you can adjust these over time. Pick the most pressing goals, such as paying off debt or creating an emergency fund, first.
• Calculate mandatory expenses . These are expenses you must pay each month, such as rent, insurance premiums, taxes, childcare, or your cell phone bill. Subtract these from your total income.
• Identify debt payments. If you are paying off debt, such as student loans or a credit card bill, find the minimum payment for each debt. Subtract that from your income as well.
• Make a spending plan. The amount of income you have left is what you can spend on discretionary expenses. These can include your goals, such as debt payment or savings. It should also include things like groceries, entertainment, gas, or surprise expenses. Give every dollar a job, based on your goals and what you discovered when you tracked your spending.
• Adjust each month. Each month, look at your spending and goals, Reevaluate and adjust where you assign your discretionary spending. A flexible budget will help you avoid overspending.

Budgets are an integral part of running any business efficiently and effectively.

Budget Development Process

The process begins by establishing assumptions for the upcoming budget period. These assumptions are related to projected sales trends, cost trends, and the overall economic outlook of the market, industry, or  sector . Specific factors affecting potential expenses are addressed and monitored.

The budget is published in a packet that outlines the standards and procedures used to develop it, including the assumptions about the markets, key relationships with vendors that provide discounts, and explanations of how certain calculations were made.

The sales budget is often the first to be developed, as subsequent expense budgets cannot be established without knowing future cash flows . Budgets are developed for all the different subsidiaries, divisions, and departments within an organization. For a manufacturer, a separate budget is often developed for direct materials, labor, and overhead.

All budgets get rolled up into the master budget, which also includes budgeted financial statements , forecasts of cash inflows and outflows, and an overall financing plan. At a corporation, the top management reviews the budget and submits it for approval to the board of directors.

Static vs. Flexible Budgets

There are two major types of budgets: static budgets and flexible budgets. A static budget remains unchanged over the life of the budget. Regardless of changes that occur during the budgeting period, all accounts and figures originally calculated remain the same.

A flexible budget has a relational value to certain variables. The dollar amounts listed on a flexible budget change based on sales levels, production levels, or other external economic factors.

Both types of budgets are useful for management. A static budget evaluates the effectiveness of the original budgeting process, while a flexible budget provides deeper insight into business operations.

Advisor Insight

Derek Notman, CFP®, ChFC, CLU Intrepid Wealth Partners, LLC, Madison, WI

The importance of budgeting cannot be understated. A budget, also known as cash flow, is arguably more important than the actual cash that you have in your bank and investment accounts. Your cash flow is what allows you to pay for everything (or not).

Without knowing your cash flow, you could be putting yourself into a bad financial situation and not even know it. You can only get by without knowing your cash flow for so long before you get into financial trouble, so make the time you know the flow of your cash. Budgeting should be something that everyone does, regardless of their financial situation.

Individuals and families can have budgets, too. Creating and using a budget is not just for those who need to closely monitor their cash flows from month to month because money is tight. Almost everyone can benefit from budgeting—even people with large paychecks and plenty of money in the bank.

Budgeting is a wonderful tool for managing your finances , but many people think it's not for them. Below is a list of budget myths—the erroneous logic that stops people from keeping track of their finances and allocating money in the best way.

1. I Don't Need to Budget

Having a handle on your monthly income and expenses allows you to make sure your hard-earned money is being put to its highest and best purpose. For those who enjoy an income that covers all bills with money left over, a budget can help maximize savings and investments .

If one's monthly expenses typically consume the lion's share of net income , any budget should focus on identifying and classifying all the expenses that occur during the month, quarter, and year. And for people whose cash flow is tight, it can be crucial for identifying expenses that could be reduced or cut, and minimizing any wasteful interest being paid on credit cards or other debt.

2. I'm Not Good at Math

Thanks to budgeting software, you don't have to be good at math; you simply have to be able to follow instructions. Many of these programs are free and legitimate. If you know how to use spreadsheet software, you can make your own ledger. It's as simple as creating one column for your income, another column for your expenses, and then keeping a running tab on the difference between the two.

3. My Job Is Secure

No one's job is truly safe. If you work for a corporation, being laid off due to downsizing or a takeover always is a possibility. If you work for a small company, it could die with its owner, be bought out, or just fold.

You should always be prepared for a job loss by having at least three months' worth of living expenses in the bank. It's easier to accumulate this financial cushion if you know the amount you're bringing in and spending each month, which can be monitored with a budget.

4. Unemployment Insurance Will Tide Me Over

Unemployment compensation is not a sure thing. Let's say a bad situation at work leaves you with no choice but to quit your job. Unless you can prove constructive discharge (that is, you were virtually forced to resign), your departure will be considered voluntary, making you ineligible for unemployment insurance. Besides, the benefits may fall well short of the wages you're used to: for most states, they average between $300 and $500 per week.

5. I Don't Want to Deprive Myself

Budgeting is not synonymous with spending as little money as possible or making yourself feel guilty about every purchase. The aim of budgeting is to make sure you're able to save a little each month, ideally at least 10% of your income, or at the very least, to make sure that you aren't spending more than you earn.

Unless you're on a very tight budget, you should be able to buy baseball tickets and go out to eat. Tracking your expenses does not change the amount of money you have available to spend every month; it just tells you where that money is going.

6. I Don't Want Anything Big

If you don't have any major savings goals (upsizing your living situation, starting your own business, etc.), it's hard to drum up the motivation to stash away extra cash each month. However, your situation and your attitudes likely will change over time.

Let's say you and your partner live in New York City in a small one-bedroom apartment and things are going fine for the both of you until your family dynamic changes. For instance, you may have a child or an in-law who comes to stay with you indefinitely, which means you'll probably need (and want) more room to accommodate the new addition. If you don't save up for anything big, you may not be able to afford this change in your living situation later on down the road.

7. I Won't Qualify for Student Financial Aid

Yes, the catch-22 of student financial aid is that the more money you have, the less aid you'll be eligible for. That's enough to make anyone wonder if it isn't better to just spend it all and have no savings in order to qualify for the maximum amount of grants and loans.

But that catch mainly applies to earned income . Whether you are an adult student going back to school or the parent of a student headed to college, the Free Application for Federal Student Aid (FAFSA) form (used for Stafford Loans , Perkins Loans , or Pell Grants ), does not require you to report the value of your primary residence (if you own a home) or the value of your retirement accounts.

So if you want to save money without compromising your financial aid eligibility, you can do so by using your savings to buy a house, prepay your mortgage , or contribute more money to your retirement accounts. The savings you put into these assets can still be accessed if you face an emergency, but you won't be penalized for it.

Even if you employ all the available legal strategies to maximize your financial aid eligibility, you still won't always qualify for as much aid as you need, so it's not a bad idea to have your own source of funds to make up for any shortfall.

8. I'm Debt-Free

Good for you! But being debt-free without any savings won't pay your bills in an emergency. A zero balance can quickly become a negative balance if you don't have a safety net.

9. I Always Get a Raise or Tax Refund

It's never a good idea to count on unpredictable sources of income. This may be the year your company may not have enough money to give you a raise or as much of a raise as you'd hoped for. The same is true of bonus money. Tax refunds are more reliable, but this depends in part on how good you are at calculating your own tax liability.

Some people know how to figure how much they'll get in a refund (or how much they will owe) as well as how to adjust this figure through changes in payroll withholding throughout the year. However, changes in tax deductions , IRS regulations, or other life events can mean a nasty surprise on your tax return.

10. I Just Don't Have the Discipline

If you're still not convinced that budgeting is for you, here's a way to protect yourself from your own spending habits. Set up an automatic transfer from your checking account to a savings account you won't see (i.e., at a different bank), scheduled to happen right after you get paid.

If you are saving for retirement, you may have the option of contributing a set amount regularly to a 401(k) or other retirement savings plan. This way, you can pay yourself first, have enough money for the transfer, and pay yourself the same predetermined amount that you know will help you meet your savings goals. 

11. It's a Luxury When I Barely Have Enough for the Essentials

Sometimes budgeting just isn't a priority because you may have too many other things on your plate. But there are certain government programs that can help you manage your household expenses. For instance, the Supplemental Nutrition Assistance Program (SNAP) helps recipients of all income levels work with their food budgets to make their benefits go further.

In general, traditional budgeting starts with tracking expenses, eliminating debt, and once the budget is balanced, building an emergency fund. But to speed up the process, you could start by building a partial emergency fund. This emergency fund acts as a buffer as the rest of the budget is put in place and should replace the use of credit cards for emergency situations.

The key is to build the fund at regular intervals, consistently devoting a certain percentage of each paycheck toward it, and if possible, putting in whatever you can spare on top. This will get you to think about your spending, too.

What's an Emergency?

You should only use the emergency money for true emergencies. For instance, if you lose your job and need to pay for expenses, you could tap into your rainy day fund until you join the workforce again. You can also use this money if you have an unexpected medical emergency that arises.

You would save money if you used your emergency fund to eliminate credit card debt , but the purpose of the fund is to prevent you from having to use your credit card for paying for unexpected expenses. With a proper emergency fund, you will not need your credit card to keep you afloat when something goes wrong.

Downsize and Substitute

Now that you have a buffer between you and high-interest debt, it is time to start the process of downsizing. The more space you can create between your expenses and your income, the more income you will have to pay down debt and invest.

This can be a process of substitution as much as elimination. For example, cancel any recurring subscriptions that you don't regularly use or need. Use half of the money you save to invest or pay off outstanding debts, and save the other half to begin building a home gym in your basement.

Although eliminating expenses entirely is the fastest way to a solid budget, substitution tends to have more lasting effects. So:

• Consider shopping with friends and family so you can split the cost, especially if you buy in bulk.
• Carpooling or taking public transport is another great way to cut down on your transportation costs.

People often cut too deep and end up making a budget that they can't keep because it feels like they are giving up everything. Substitution, in contrast, keeps the basics while cutting down costs.

Find New Sources of Income

Why isn't this the first step? If you simply increase your income without a budget to handle the extra cash properly, the gains tend to slip through the cracks and vanish. Once you have your budget in place and have more money coming in than going out (along with the buffer of an emergency fund), you can start investing to create more income.

It is better to have no debt before you begin investing. If you are young, however, the rewards of investing in  higher-risk, high-return vehicles like stocks can outweigh most low-interest debt over time.

Now that you know the steps it takes to build a budget, you'll need to know how to build it. We've outlined the basics of how to craft a comprehensive budget below. Some of the information listed here has already been discussed. But it helps to reiterate it.

• Calculate your total monthly income. This includes any wages , salaries, tips, benefits, and any other money that you get on a regular, monthly basis.
• Determine your normal monthly expenses. Some of these are predictable, which makes them easier to work, especially if they don't change every month. Think of your mortgage or rent, utility payments, transportation costs, and other similar expenses. Some may fluctuate each month like your food or clothing costs. In these cases, it's always a good idea to err. onside the caution and budget a little higher. Be sure to include your debt, as well, such as loans and credit card payments.
• Plan for any extras, including spending money in case you want to dine out, order takeout, see a movie, or do any other activity.
• Note down any amount that you'll set aside for savings if that's in your plan.

Now that you have these figures, calculate your plan and write it out. A budget doesn't (and can't) work if you don't put it in writing. If you see it, you'll have more incentive to stick to it. You may have to do some juggling, especially in the initial few months. This means adjusting here and there so you stay within your planned budget. But once you've passed this hurdle, it should be fairly problem-free going forward.

If you can, though, keep your receipts and average out how much you spend each month when you build your monthly budget. This can help you determine how much to budget for any expenses that may change from month to month.

Now you understand the finer points of budgeting. You've accomplished all of the above, even putting together a nice spreadsheet that lays out your budget for the next 15 years. The only problem is that sticking to that budget isn't as easy as you thought. That credit card still calls your name, your clothes category seems awfully small and you feel deprived. Budgets, you decide, are no fun.

The good news is you don't have to throw it all out the window just because you've messed up once or twice.

Remember the Big Picture

The point of the budget is to keep you out of overwhelming debt and help you build a financial future that will give you more freedom, not less. So think about how you want your future to be and remember that keeping to your budget will help you get there. Adding to your debt load , on the other hand, will mean that your future could be even tighter.

Remove the Options That Allow You to Cheat on Your Budget

Make it more difficult for yourself to make impulse purchases. In other words, set up barriers so you have time to stop and think: "Is this purchase necessary?" Take yourself off retailer email lists. Remove your stored payment information on your favorite online shops so you can't just click to order.

Find Some Support

If you feel like you're the only one in your group who is on a budget, search and find some like-minded folks. It could be an online forum, a monthly meeting, or even just a couple of friends traveling the same budgetary road. You need to know you're not the only person setting sane financial limits for yourself. You can also have accountability with your frugal buddies, talking things over and each other out of temptation.

Go Old School

There's something powerful about handing over a stack of $20 bills for purchase: It causes you to really think about the amount of money you're about to spend. Swiping a debit card , on the other hand, may not feel nearly as real. Similarly, paying bills by writing checks and promptly entering the sums into your register keeps you up-to-date on how your account is affected in a way that autopay doesn't.

You don't have to use cash exclusively or completely forgo online payments, but handling transactions in old-fashioned ways can make you realize how much you're spending and enhance the power of self-regulation.

Reward Yourself

If you constantly look at what you have to cut and give up, the very act of budgeting becomes distasteful. A mixture of long- and short-term gifts to yourself will help keep you motivated.

When you've been faithful to your budget for a month, give yourself a reward. Even small ones can help, such as a night out with friends, a concert or a little extra cash for spending.

Keep visual reminders of these rewards or the things you're saving up for. Start building associations in your brain—that sticking to your budget has a pleasurable result.

Schedule a Periodic Budget Evaluation

It's difficult to predict how much money you'll need in every category of life; a new job may necessitate a wardrobe change and your clothing budget may not cut it. That's why it's important to have a regular check on how you've created your budget. If it isn't working, tweak it. It is your budget, after all—just make sure you keep your long-term financial goals in the picture.

Educate Yourself

Instead of taking the more common road of instant gratification, which leads so easily to overspending and endless debt, learn all you can about finances, money management , and how you can best invest in yourself. Talk to your financially savvy friends and get real-world tips and advice from people who are doing well with their money.

The more you learn about handling money wisely and its rewards, the more concrete the reasons for budgeting will be, and the better you will be at not only creating a budget that works for you, but also sticking to it.

Ways to Budget When You're Broke

Budgeting strategies sound fine, but if you're in dire straits financially or suffering from mounting bills and a lack of funds, there are some other possible steps to take.

1. Avoid Immediate Disaster

Don't be afraid to request bill extensions or payment plans from creditors. Skipping or delaying payments only worsens your debt—and besides, late fees ding your credit score. 

2. Prioritize Bills

Go over all your bills to see what must be paid first and then set up a payment schedule based on your paydays. You will want to leave yourself some catch-up time if some of your bills are already late.

If this is the case, call the bill companies to see how much you can pay now to get back on track toward positive status. Tell them you are taking strict measures to catch up. Be honest about the amount you can afford to pay; don't just promise to pay the full amount later.

3. Ignore the 10% Savings Rule

Stashing 10% of your income into your savings account is daunting when you're living paycheck to paycheck. It doesn't make sense to have $100 in a savings plan if you are fending off debt collectors . Your piggy bank will have to starve until you can find financial stability.

4. Review Spending

To fix your finances, you need to get a handle on your outlay first. Online banking and online budgeting software can help you categorize spending so you can make adjustments. Many people find that just by looking at aggregate figures for discretionary expenses , they are spurred to change their patterns and reduce excessive spending.

5. Eliminate Unnecessary Expenses

Once you've got a sense of where the money goes, it's time to tighten up. All cutbacks should start with items you wouldn't miss or habits you should change anyway—like reducing your fresh food purchases if you find ingredients spoiling before you can eat them. Or preparing meals at home more instead of going to restaurants or getting takeout.

Some expenses you shouldn't drop but might be able to adjust could include reducing your auto insurance rate by switching carriers.

6. Negotiate Credit Card Interest Rates

There are other proactive ways to reduce expenses. Those killer interest rates on your credit cards aren't fixed in stone, for example. Call the card company and ask for a reduction in the annual percentage rates (APR) . So if you have a good record, your request might be approved. This won't lower your outstanding balance, but it will keep it from mushrooming as fast.

7. Keep a Budget Journal

Once you've gone through these steps, monitor your progress for a few months. You can do this by writing everything you spend in a notebook, via budgeting apps on your phone, or with the software you used in step 4 to review your spending.

How you track your money isn't as important as how much you are tracking. Focus on ensuring that every cent is accounted for by dividing your expenses into categories. Fine-tune and adjust the spending as needed after each month.

8. Seek New Income

For the time being, saving and investing money is out. But consider ways to increase earnings: working overtime, getting a second job, or picking up some freelance work.

A budget isn't a prison cell to keep you away from your money. Rather, it's a tool you use to make sure your future is better—and yes, richer, than your present.

How Do You Create a Budget?

Creating a budget takes some work. You'll need to calculate every type of income you receive each month. Next, track your spending and tabulate all your monthly expenses, including your rent or mortgage, utility payments, debt, transportation costs, food, spending money, and others. And write it down. The only way to reinforce your budget is to see it in writing. You may have to make some adjustments initially just to stay within your budget. But once you've gone through the first few months, it should become easier to stick to it.

What Is the 50-20-30 Budget Rule?

The 50-20-30 budget rule was popularized by Sen. Elizabeth Warren (D-Mass.) in her book All Your Worth: The Ultimate Lifetime Money Plan. The plan entails dividing all of your after-tax income into 50% on your actual needs, 30% on anything you want, and 20% on savings.

How Does Budgeting Help a Business?

Just like budgets help people, corporate budgeting helps businesses stay on track . This way, they don't stray very far from what they've projected. They also help business leaders make very important (investment) decisions, manage and meet goals and objectives, and identify any hurdles that come their way.

The word budget often conjures up images of complicated financial documents. But it's a tool that can be used by various entities, including governments, businesses, and individuals/households of every income level. The key is to learn how to craft one and how to stick to it. Once you have these key points under your belt, you'll be better prepared at securing your financial future.

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What is a Budget and What is Budgeting?

Budgeting is the process that leads to a budget. A budget is a financial plan and forecast for the company's economic events.

How Budgeting Works

The budget is typically linked to a time period (such as a fiscal year) and is often built based on the organisation's departments or business areas. The budget is a plan for the organisation's expected outcomes during the period it covers. The budget includes both revenues and costs, but it can also include investments and cash flow.

Budgeting also correlates with key performance indicators ( KPIs ) and goals set for various parts of the operation. These goals are tied to the company's strategy and business plan, and the allocation of the budget should help the business reach its objectives.

A budget consists of three parts that need to be budgeted:

1. The performance budget  is most commonly what is budgeted and thus often what is referred to as "the budget". The income budget consists of the company's revenues and costs. The purpose is to calculate and control the company's revenues and costs.

2. The liquidity budget (cash budget) deals with the company's liquidity (liquid assets). The liquidity budget reflects the company's payment ability over a period. This means that the liquidity budget shows whether the company has "actual money" to pay out and what is coming in.

3. A budgeted balance sheet shows how assets, equity, and liabilities are expected to evolve over the period that is budgeted.

Main Budget, Sub-Budget, and "A single source of truth about costs"

Income, liquidity, and budgeted balance sheets are main budgets and are built up of sub-budgets that are summarised. Examples of sub-budgets include budgets built up per department or business area, such as a sales budget. The total budget consists of all sub-budgets. Other examples of sub-budgets are cost budget, staff budget, overhead budget, and capital budget.

According to a minor survey by McKinsey , the majority of managers (57 percent) are dissatisfied with the transparency of administrative and general costs.

Of those who are satisfied (43 percent), the main source of satisfaction was advanced software that served as a single source of truth about costs . Does this resonate with your experience?

Different Budgeting Methods

In the budgeting process, there are many methods to choose from, where factors such as the type of business, corporate culture, and previous experiences can come into play. Examples of different budgeting methods include:

Account-Based Budget: In the Account-Based Budget, the structure of the planning work is based on the chart of accounts, which is the list of all the accounts the company uses for its accounting. This is the traditional way of conducting Financial Planning.

Driver-based budget: With a driver-based model, the company plans based on concepts close to operations. This can involve factors like the number of products sold, occupancy rate, or volume. The key is that the 'drivers' are concepts important to the operation and that the employees can understand and adopt.

Rolling Budget (Rolling Forecast) : Gives you a continuous picture over the forecast's time window (the period you're looking at). The budget/forecast "rolls" forward while a traditional forecast ends at a specific point in time (usually the end of the fiscal year).

When the budget is reworked, you instead look (for example) 12 months ahead. Rolling forecasts are more flexible than other forms of budgeting and help companies look ahead, based on where they stand today.

Top-Down Budget: Management develops an overall budget for the entire company based on the company's business goals and possibly previous budgets. The budget is then distributed, for example, among the company's departments.

Bottom-Up Budget: The budget is built from the bottom up and compiled into a total budget. This could be based on the organisational structure where different departments set their own budget. Management approves the budgets and may request adjustments until a final budget is in place. This can mean that several versions of the budget are created and processed before a final budget is approved.

Zero-Based Budgeting: Here, departments must continuously justify their budget (and their costs). Nothing is assumed to be included for the next budget period. The idea is for the company to become more cost-conscious and for managers to start from what is necessary for the upcoming budget period.

Some of these methods are grouped under concepts like ' Beyond Budgeting ', also known as 'budgetless control', where work is done more agilely and based on a collection of management processes and principles. Often, this involves working with a rolling forecast.

Budgeting and Financial Control

Budgeting is closely linked with Financial Control and Strategic Planning because money is a prerequisite for what the company does, and the distribution of money is thus a way to manage and influence the operation.

Budgeting also provides financial information to stakeholders about the company's financial position. It can thus be a control tool that contributes to security, motivation, and transparency.

The data and insights you have related to your company's financial position should be quality assured, accessible to everyone involved in the budgeting, and ideally visualised in a way that facilitates understanding.

Actively monitoring how the operation performs relative to the budget (budget follow-up) allows you to see if goals are being met (how it turned out), and cash flow calculations ensure that you have enough money. It's also a good idea to work with scenario planning in your budgeting process, and your work is facilitated if you have software in place that can handle this.

Budget as a Tool

In financial control work, it's advantageous to continuously analyse the operation in relation to the budget, in order to identify and act on any deviations (the difference between budget and outcome).

View budgeting as a tool that supports decision-making and economically follows up on business results. Follow up on budget outcomes, liquidity, profitability, solidity, and act on deviations.

Also, bear in mind that a budget that is too detailed can become cumbersome and thus less useful as a tool. The budget should be prepared at the lowest possible level, thereby staying close to the operations.

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Financial Management – Methods and Tools

Financial Management is the process of translating strategies and business plans into actions that will help achieve the company's financial goals. In this process, you aim to align the goals of employees with those of the company by implementing control, measurement, and follow-up.

Rolling Forecast and Rolling Budget

Rolling Forecasts are a type of forecast that, instead of focusing on the calendar year, always base themselves on a set period going forward, such as 12 or 18 months. Rolling Forecasts are carried out continuously and are a support to the company management, but can also be used to, for example, forecast sales.

Project Budget: How to Do Project Budgeting

A project budget is a plan for how much money will be spent on a project. The project budget plays a crucial role as it helps ensure that the project stays within budget and that adequate resources are available to complete the project.

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Free Small-Business Budget Templates

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A business budget template is one of the most important tools you can use to run your small business. However, many small-business owners skip this vital business management step.

The misconceptions surrounding budgeting are plenty. It seems complicated and time-consuming. But with a good business budget template, the process can be much less daunting.

An effective small-business budget template is a living document. Creating a budget and then forgetting about it is wasted effort. You must compare your actual numbers against your budgeted numbers regularly.

Therefore, your budget should be easy to access and adjust on an ongoing basis. But you don’t have to spend a lot of money on business budgeting software , if you don't want to. There are several free small-business budget templates available online.

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Why you need a business budget template

A business budget template is an essential tool for business owners who want to take care of their bottom line. Why should you invest in a smart template from the start?

Here's how a business budget template can set you up for success:

Track cash flow, expenses and revenue.

Prepare for regular business slowdowns.

Allocate your budget to the portions of your business that need capital most.

Plan for business investments and purchases.

Project all costs to starting and running your business.

Generally speaking, your business budget template can act as a business health scorecard if you invest in setting one up properly. Here's our list of the best budget templates available so you can do just that.

Capterra’s Free Small-Business Budget Template

The Capterra small-business budget template has been a fan favorite since it was published in 2015. In this one simple Excel workbook, you can create your monthly budget, your annual budget and then compare your actual numbers to your budgeted numbers. It also has a convenient overview sheet, which gives users access to their performance at a glance.

To help you through the process, Capterra has included a detailed Instructions tab, which walks you through how to use the template step by step. Start here to save yourself hours of time and frustration. As a bonus, there are several resources linked on the Instructions tab to help you create the perfect budget for your small business.

PDFConverter.com 15 Best Budgets

Rather than one bloated Excel workbook that tries to do everything, PDFConverter.com has compiled a library of 15 small-business budget templates.

These templates cover a wide range of budgeting needs, from a basic overview of your business income and expenses to marketing budget templates. The startup budget template is ideal for newbie entrepreneurs still in the planning stage of their businesses. And the cash flow template is perfect for identifying and plugging cash flow leaks.

Annual Business Budget in Google Sheets

Do you love all things Google? You can create a comprehensive budget for your small business right from Google Sheets. Simply navigate to your Sheets and then click on Template Gallery . Our friends at Intuit QuickBooks have created an annual business budget you can use for free.

To fully appreciate the power of the template, review the Summary tab after you have entered your budget figures. The tables and graphs on this tab offer a visual representation of your income and expenses, making it easy to see where you stand at a glance.

Microsoft Office Template

This beautiful template from Microsoft Office focuses exclusively on expenses, but it does that job exceptionally well. There are tabs for planned and actual expenses, a tab for automatically calculated variances between the two and an expense analysis tab complete with pie charts.

Your accounting software

While not a free template per se, you likely have a powerful budgeting tool available right inside your business accounting software . Though not as flexible as a separate template, there are many advantages to using the budgeting feature of your accounting software.

The budgeting feature in your accounting software will coincide with your chart of accounts. Depending on the software you use, you can create a budget to actual comparison reports with the click of a button, making analysis a cinch.

Some software programs even let you set multiple budget scenarios and have “cloning” features, which simplify the budgeting process after the first year.

Designing your budget

Now that you’ve chosen your business budget template, it’s time to start designing your budget. This is where many small-business owners procrastinate because people typically see budgeting as restrictive or punishing.

It's time to shift your perspective on budgeting. Most people start with income and tinker with their expense amounts until they arrive at a balanced or surplus budget. This method usually leads to unrealistic projections and ends in frustration.

Instead of a top-down approach, consider “reverse engineering” your budget by following these four simple steps:

Form your income projections and write those down outside of your budget template. Put this paper or spreadsheet away until after you have completed the next step.

Enter your expenses into your budget template. Be very honest in your entries and include everything. Going through several months’ or even a year’s worth of accounting data or bank and credit card statements will ensure you capture all your spending. This is not the step where you want to try to eliminate expenses. Record everything, only excluding expenses you have already eliminated from your monthly or annual spending.

Enter your income from the projections you formed in step 1.

Review your budget. If your budget shows a projected loss, analyze your expenses and identify areas where you can reduce spending.

This approach makes sure you avoid the temptation of forcing your budget to balance. While you do want your budget to balance — or better, to show a cash surplus — having unrealistic income or expense numbers will lead to frustration and resistance during the budgeting process.

Monthly or quarterly, compare your actual income and expense numbers to your budgeted numbers. Regular tracking helps identify financial pitfalls before they become unmanageable.

Frequently asked questions

How do i make a budget template.

You can create a small-business budget template from scratch by using free software like Microsoft Excel or Google Sheets. However, it’s often more efficient to download a template (see our list above). A template with built-in tables and formulas makes plugging in your revenue and expenses and calculating your profit or loss quick and straightforward.

What is included in a small-business budget?

Your small-business budget will include your revenue, expenses and your profit or loss. Each section will be broken into subcategories. For example, under revenue, you might have sales and income from sponsorships. Expenses might be broken down into rent, employee salaries and marketing. After you tally your revenue and expenses, you can then calculate your profit and loss statement.

How much should a small-business budget be?

A budget will vary by your business and industry. For example, you can potentially start a social media consulting business for less than $5,000. But a food truck business may necessitate a budget of at least $50,000. You must tailor your small-business budget to your unique needs.

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Business plan vs. forecast vs. budget.

Is your head spinning from all the stress & time spent on business plans, forecasts and budgets?  Remember,   planning is not a science…it’s an exercise…that should refresh you, keep you agile, and make you feel in control of your destiny!    Is that how you feel?     As we enter into this year’s budget and forecast season, try to   challenge yourself and your team to become more efficient and to create better standards for planning and budgeting.  In turn, you will be less likely to reinvent the wheel each year.  This article is a practical overview of each process (Business Planning, Forecasting & Budgeting), how to connect them, and have them add value to your business.

So why is planning so stressful?  Take a look what a planning calendar can look like: February-April prepare business plan, July-September prepare forecast, October-November prepare Budget, Feb start over again.  The larger the company, the more planning that takes place.  People get nervous about the process, don’t know where to start, fear they will be judged, and think a lot of time is wasted.  In small companies planning often gets overlooked because of time constraints or lack of interest.  If you understand the differences between each planning tool, the impact they have on one another, and on your business, you will be more inclined to use the information properly.  Here is an overview of how to control the planning exercise and get the most out of it.

What is a Business Plan?

A   business plan   is a written description of your strategy going forward.  It outlines the direction of your overall business and each function of the business supporting that overall direction.  It details market share changes & assumptions that are charted out over the time period such as economic assumptions, competitors, pricing, costing assumptions, new product releases, retired product plans, new facilities, reductions in some areas and investment plans in others. 

When creating a business plan you need to understand where your company is today, and where you want it to be during a time period, in one year, two years, three years.  Also, what happens to the market around you when you make your changes, how will the market/competitors react, what are the anticipated risks?

The benefit of a business plan is to get everyone on the same page as to where the company is going.  It shapes all the decisions going forward; a litmus test for decision making and planning.  It is also a good reference point for assumptions.  If assumptions change, so should the business plan. 

The problem with business plans is when they remain static documents; they shouldn't be.  They should be updated throughout the year, just like a budget-to-actual analysis.  Things change and evolve, so should your litmus test. Always maintain a record and comparison versus the original to maintain as a “baseline” so that you can evaluate your assumptions and take away lessons learned for the next business cycle.

Your business plan should be communicated throughout your organization.  You do not need to share   all   of the details, especially if there are workforce reductions or other sensitive assumptions.  However, you should take a broad view of the business plan and share it.

Share the vision: where are you today, where do you plan to be

Share the mission: macro scope actions the company must to take to get there

Share the expectations: quarterly or other time frames to accomplish the mission

What is a Forecast?

A forecast is financial trend that mirrors the business plan period.  If you develop a five-year business plan, you should create a five-year forecast.  Forecasts should be rolling.  That means each month they should be updated (actual data replacing estimates).  Forecasts should be fluid, linked to changes in the business plan. Forecasts should be updated each year, not reinvented.  Current year forecast should represent a macro level budget.  Forecasts should be macro product line level, not SKU/Customer level..  The basic components of a forecast are sales, costs and investments….in that order.  Don’t forget to estimate personnel required to deliver the volumes in the plan as part of your costs.

Sales Forecast

In a spreadsheet list each product line.  Add last year’s actuals by month for volume, price and revenue.  Project current year results by month using actuals that exist and projections for each month going forward. Do the same for the next two to four years.  Each year determine and incorporate the following assumptions:

Value of the dollar over each year.  It is fine to assume no change for the sake of planning, but state that is the case.

New product lines coming on line

Old product lines going away

Pricing strategy

Key account strategy…accounts you are targeting for growth and those you may walk away from.

You should try to transition low margin business for new higher margin accounts.

You should have a baseline conservative projection in line with your business plan strategy, and then a second line that accounts for risk and opportunity.  This is important to determine what investments you   NEED , and which ones may be necessary.  It is easier to get funding for non-budgeted investments if they are based on exceptional growth.

There is no science here…if you can explain blips and dips in the previous year, you can project or eliminate them in future years.

Your forecast should not look like a hockey stick…conservative first year then dramatic growth the following years.  By having a realistic story and a separate story for risk and opportunity, you can create a real document that your company can use. 

Costs & Investments

Once the sales forecast is complete, the operations group evaluates the sales volumes, determines any investments that need to be made to meet volumes or new products.  They determine directional estimates on raw materials, and workforce requirements.  Once complete the accounting team takes this information and builds the forecast model, determining projected profits and losses.  Consider the following assumptions:

Are facility expansions or capital equipment expenditures required?

What inventory levels will be necessary for the plan, are they different than previous years?  Is more space required, less space?

Anticipate cost reductions due to production & logistics efficiencies; incorporate efficiency programs into the plan.

Be realistic in your assumptions, not too conservative on costs.  Your objective is to reduce overall costs and improve efficiencies.  If they remain the same over time you should be prepared to explain the assumptions that raw materials are going up but your programs are maintaining cost levels…what are those programs and what time periods will they be impacting the plan.

Be sure to incorporate any marketing plans into your cost structure.  Will there be new packaging, new services, etc.…

What is a Budget?

A budget is a micro level analysis of the upcoming year.  You typically finalize the budget by November if you are planning a calendar year budget (Jan-Dec).  In comparison to the product line level forecast, a budget breaks the numbers down to the customer and product SKU level.  Your budget should mirror year one of your forecast.  If something changes during this process and the totals differ…take the time and update your forecast while the information and rational is fresh in your mind.  Otherwise you run the risk of starting over again next year.  Everything should be linked, and changes should be made consistently.  Here are some things to consider for your budget process:

• Consider your time frame for: personnel additions, new customers coming on line, and cost changes.
• Do you plan any price increases or cuts?  Your timing should line up with profit adjustments.
• Do you have purchasing contracts in place?  Try to settle these prior to finalizing your budget.  The more accurate the data, the better.
• Can you negotiate sales contracts with key accounts prior to the budget process in order to reduce price and volume risk?
• All departments of the organization incorporate their spending assumptions in the budget process.  Use current year actuals as a base, then justify increases or decreases each month, taking into account any explanation for dips and peaks that occurred in the current year.
• Make sure your budget is also a rolling document.  Every month, as you start, and throughout the year, it should be updated with actual results (on a separate line).  Do not forget your budget assumptions…learn from them and compare your actual to budget figures.  What changed, and do these changes impact future months?

Whether your are leading an organization, managing a department, or providing an individual contribution to the planning, forecasting or budgeting process…you should have an understanding of the big picture and how things relate to one another. 

Here are some final   DO's   and   DON'Ts  of planning exercises:

DO use old information to plan for the future.

DON'T forget to account for dips and peaks in the past… make a decision   to either incorporate them or not into future planning.

DO tell as story with your data.  You should add comments to your spreadsheets.

DON'T forget why you put figures into your planning, or where they came from.

DO account for rainy day funds, miscellaneous costs & margin of error.

DON'T hide this information in your figures, put it a separate line that is visible.   If everyone hides extras/padding, the entire budget will be skewed and this could make for bad business decisions.

DO be honest, direct & candid throughout all aspects of planning exercises.  If you are leading the exercise, create an environment where people can be honest with you.

DON'T create a useless document that brings no value to the business besides looking good during a presentation….followed by endless explanations for failure throughout the year.

DO create and include a tactical plan into your figures that is linked with the business plan mission.  What are you doing to achieve the mission on time?  What are the costs associated and the cost reductions/new business results that are generated from your efforts?

DON'T separate the business plan from the forecast or the budget.  Always revisit, revise and learn.

DO communicate, communicate, communicate, the plans and the results, as well as the story of what the company is learning from the process.

DON'T create documents that get put away until they are reinvented the next year.

It really does help to take a full picture view of planning, have a well rounded understanding of your business and the needs of each functional area.  Understand how things connect, and how together, they can make the company stronger and more agile.  If your business is a service provider, or a project management entity, these principles still apply.  The difference is that instead of calculating volumes & pricing, you calculate timing and cash flows.

Think about your own planning experiences.  Does your company do a good job?  Do you feel like a part of the process, or just a micro contributor?  Consider using this training article in your organization to get everyone on the same page, working together with the same direction and purpose.

If you are looking for a business plan template, ManagingAmericans.com has one avalilable.  Use this   t emplate   and   guidebook   to organize your thoughts and develop insight into important areas you may not have even considered.

If you haven’t done so already, please j oin our community  to receive professional development updates from experts who are here to help you grow, learn, and experience professional success.

Written by  Lisa Woods ,  President & CEO ManagingAmericans.com

Lisa, a thought leader in Business Management and Leadership, founded ManagingAmericans.com in 2011 after 20+ years successfully leading and driving growth in the corporate world. Her objective is to help mentor and develop professionals to be better leaders, managers, team players and individual contributors in a “do-it-yourself” learning environment using unique & practical tools to support the process. Lisa’s career spans from Global Sales & Marketing to General Management of Multinational Conglomerates. Today she continues to consult small business owners through her private practice. Lisa's publications include: • 4 Essential Skills for Leaders, Managers & High Potentials © 2013 • The Cross Functional Business: Beyond Teams © 2015 • Action Item List: Drive Your Team With One Simple Tool © 2016 • Small Business Planning Made Simple: What To Consider Before You Invest © 2017

Do you have a question for Lisa?  Please visit our Executive Leadership Community , she will be happy to help:  Ask an Expert

Did you find this story informative?  We would like the opportunity to keep you up to date on all of our training articles.  Please  register  for our newsletter so we can do just that.  

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Spending Plan vs. Budget: What’s the Difference?

You might not feel like you have your money all figured out yet, but your palms are itching for some financial control. You’re here! You’re ready to make a budget. Or a spending plan. Or wait, are they different? Which one is going to get you closer to your financial goals?

Spending Plan vs. Budget

Sure, you’ve heard of a budget—and have the accompanying knee-jerk reaction too. The shudder. The wince. The belt tightening. But here’s the thing, a budget and a spending plan are the same thing. Budgets get a bad rap, but that’s what they are: a plan for spending money. You’re taking the money you have, right now, and saying where it should go. 

In this article, we use the word spending plan and budget interchangeably, because they’re the same thing!

What is budgeting? Learn everything you need to know in our comprehensive guide.

How Do I Make a Spending Plan? 

  1. make a list of current expenses.

First things first, answer this: how much does a month of your life cost? The bills, but also the fun stuff too. Make a list! You can write this list down on a piece of paper (or use the free trial we offer in YNAB to make the rest of the steps a little easier).

Look through this list to jog your memory. It’s not exhaustive, but it will give you a solid starting point:

• Mortgage/rent
• Student loan
• Car payment
• Electric bill
• Other utilities (trash service, gas bill)
• Transportation costs (gas, bus pass, tolls, parking)
• Auto maintenance (oil changes, new tires)
• Car registration (license, tab renewal)
• Auto insurance
• Home maintenance
• Renter/home insurance
• Medical costs (dental, eye care, therapy, doctor, etc.)
• Computer/phone replacement
• Software subscriptions
• Entertainment subscriptions (Netflix, Hulu, Spotify, etc.)
• Gym membership/fitness
• Beauty (hair cuts, makeup, nails, etc.)
• Property taxes (if they’re not rolled into a mortgage)
• Life insurance
• Warehouse membership (Costco, Sam’s club, Amazon Prime, etc.)
• Credit card fee (some cards have yearly costs)
• House decor
• Banking (interest owed or fees)
• Household goods
• Kids’ Expenses (piano lessons, swimming, summer camp, etc)
• Miscellaneous

If you’re writing this list down, just put the amount next to the category. If you’re using the YNAB software, you’ll set up a target in each category . It’s ok to guess!

Once you have all the categories and the estimated costs, add them up. This number is your starting point. It gives you a ballpark of how much your current life costs.

If you’re a visual learner, watch this video to see how you can estimate your total monthly expenses by setting up a budget template in YNAB.

Example Spending Plan

For example’s sake, let’s say a single guy named Billy is setting up his spending plan. He goes through this step and finds out his current lifestyle costs $3,386 a month (and he also spends way more on pizza rolls than he realized). Here’s what this exercise looked like for him:

• Rent: $1200 (utilities included)
• Student loan: $350
• Electric bill: $80
• Internet: $60
• Auto Loan: $200
• Groceries: $350 (that includes $50 worth of pizza rolls)
• Car insurance: $90/month
• Renter’s insurance: $20
• Medical: $0 (money comes out of his paycheck for a Health Savings Account (HSA) so he doesn’t count this in his budget)
• Clothes: $100
• Netflix: $9
• Spotify premium: $10
• Amazon Prime: $12 ($120/year)
• Crossfit gym: $110
• Eating out: $275
• Dates: $100
• Miscellaneous: $75
• Vacation: $100 ($1200/year)
• Credit card minimum: $25 (current balance: $2400 – 0% APR until Oct 2020)

Total monthly expenses: $3,386

Nice. Billy’s got his number! He knows how much it costs every month to be him! We’ll come back to Billy later. For now, back to you.

2. Take the Money You Have and Give Every Dollar a Job

Take a look at your bank account and see how much money you have right this minute. Maybe your balance is slim, maybe it’s fat, but this step remains the same no matter your position.

You’re going to take the money you have right now and make a plan for that money. If you’re not familiar with the YNAB Method , this is the very first rule of YNAB— Give Every Dollar A Job .

It means just what it says. Only assign the money you have right now. See that account balance? That’s the money you can allocate to your spending plan. 

When more money comes in, you’ll decide what to do with that money at that time (and not a moment sooner). You get another paycheck in two weeks? You’ll budget the money in two weeks. Right now, it’s only about the money you have.

This is a simple but powerful shift for most people who are inclined to forecast all of the income that they expect to receive for the month. But that’s just asking for trouble—that isn’t based in the current reality. Do yourself a favor and only count on the money that you have right now .

Example: Billy Gives Every Dollar a Job

For Billy, he looks at his checking account and has $2,850 currently sitting there. If you remember from the first step, his monthly expenses total $3,561. Now he’s able to see that the money he has won’t cover everything he wants in a month. Sure, he feels a little bummed but he also feels relieved to finally see the whole picture.

Here’s how Billy prioritizes the money he has to pay for the rest of the month (at the time of writing, there is only one week left this month, so he budgets $150 for one more grocery run and the rest of the money goes for next month):

Spending Plan Example:

There is no right or wrong way to prioritize your money. Each person is going to make the choices that make the most sense to them.

3. Let Your Spending Plan Guide Your Way

As you go about your days, you’ll add your transactions (or have them imported by YNAB) to keep a current balance on how much is left in each category. By creating and using your spending plan, you’re giving yourself clarity. $25 left in coffee this month? Go for a latte! $3 left in clothing? Skip the purchase—you’ve got rent coming up! 

Change your plan any time, move money around to cover overspending, and let your spending plan be dynamic and changing, just like your life!

Why Do I Need a Spending Plan?

Remember the before times? When you just had one murky checking account balance with absolutely no clarity? You were still spending money, but you had no idea what you could afford!

• Could you spend $500 on a new phone/computer/shiny thing right now?
• How about spend $40 to go out to eat with your friends tonight?
• Could you buy a $15 surprise gift for that special person you care about?
• Can you still pay your rent or mortgage?

Your checking account balance alone doesn’t give you enough information to answer the question we all must ask multiple times a day: “Can I afford this?” Because it’s not about how much money we have. It’s all the other things that happen in our lives—our monthly rent payment, when our bills are due, and what we feel like doing with our evenings—that determine the answer to that question.

And that’s the problem with just checking our account balances . They only show us how much money we have—not what our money is for. But when we create a spending plan, we’re taking the blindfold off, stripping away the uncertainty, and giving us a clear path (that we set for ourselves!)

The Gift of Financial Clarity

With a spending plan, you neatly divvy up your dollars to those things that matter most to you: your priorities. And when you make a decision to spend (or not spend) money, you look at what’s available in your budget categories, not how much is left in your checking account.

Then, you’re dealing with certainty. You no longer have to guess or wonder or hope that you did your quick number crunch correctly while deciding what to order off the menu. You just know. When you can trust your spending plan, it has a realistic answer to any spending question you may have. And if nothing else, we want our budgets to be realistic.

Ready to make a spending plan? YNAB’s Four Rules allow you to easily make a spending plan to give you clarity when making your financial decisions. Can I buy this? Your budget simply answers the question—yes or no. No hoping required, and totally guilt free. 

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Business Plan vs. Business Proposal

The terms “business plan” and “business proposal” are sometimes used interchangeably, however, they are very different. The main difference between a business plan and a business proposal is that a business plan documents your growth strategy while a business proposal is a specific ask for someone to take an action you desire (e.g., buy your product/service, invest in your company, partner with you, etc.).

In this article, we will define a business plan and a business proposal and give you examples of when each is appropriate for you to use.  

What is a Business Plan?

Download our Ultimate Business Plan Template here

Business Plan Structure

Typically, the business plan structure contains the following 10 components:

• Executive Summary
• Business Description & Overview
• Market Research & Analysis
• Customer Analysis
• Competitive Analysis
• Marketing Strategy & Plan
• Operations Plan
• Management Team
• Financial Projections & Plan

It is recommended that a business plan is updated annually to adjust for changes in the industry trends and the business itself.  

What is a Business Proposal?

In terms of what you are asking from them, it can be anything that involves funds and time on their end including cash investment, product development assistance, and even employees if they have applicable skill sets.  

Business Proposal Structure

An invited business proposal is written in response to an RFP. A request for proposal (RFP) is a document that invites potential suppliers to submit business proposals. How to write a business proposal depends on the format requested and the questions included in the RFP.

The following are the components that usually make up a business proposal:

• Brief description of your company’s services/products as the proposed solution to the goals of the RFP
• Reiteration of the scope of the particular project
• Responses to questions asked in the RFP
• Cost of the project, including drafting services, materials, tools, labor, delivery and other expenses

An unsolicited business proposal is essentially the same format, but it will solicit the client’s business while anticipating the clients’ concerns and issues. A business proposal is more of a marketing document than an offer because it attempts to persuade the potential client to do business by demonstrating your value proposition and a call to action.  

So, What’s the Difference Between a Business Proposal vs. a Business Plan?

In a business proposal, company representatives typically work with the customer to tailor a business proposition that is attractive to both parties. This usually comes in the form of a written document detailing the services and cost associated with fulfilling an offer or request but can also include electronic contracts.

In contrast, a business plan is a description of your company on the executive and operational levels aimed at investors for raising financial support or other stakeholders in order to facilitate long-term growth. For example, an investor will want to know about how different departments within your business interact with one another, while somebody who will be implementing your product probably only needs more limited information such as design specs because they are not going into production themselves.

A business proposal may provide you with more details of the project, but it does not include information about your company’s operations or future plans.  

Examples of Business Plans vs. Business Proposals

• When you give a potential investor your business plan which includes all sorts of information about how we will achieve your goals together as well as the amount of money it’s going to take. The business proposal is for them to write you a check in return for interest/principal payments or a percentage of your company.
• You might be getting partners involved in your business who will help with product development and distribution. You are offering them a business proposal to work together. However, they may request to see your business plan to better understand your goals, potential profitability, and how you plan to reach these goals before deciding to work with you.
• Your existing business has been so successful that you decide to outsource the social media marketing efforts to a freelancer to free up more of your time. The freelancer would provide a business proposal stating their terms and conditions along with the agreed-upon pay arrangement for their services. This change in organizational structure may be noted in your business plan to demonstrate expansion and financial stability to continue growth.
• In your business plan , one of your goals is to grow your client base by 5% each month. You identify potential clients in need of your services or products and send an unsolicited business proposal to demonstrate how your products or services can benefit them in order to develop a new prospective client list.

The business plan is a roadmap for your company’s present and future, while the business proposal has to do with what you are asking someone else for money.  Applying this difference into practice can be difficult at times because business plans are often marketed as business proposals. However, it is important to be able to identify the difference between a business plan and business proposal in order to maximize their effectiveness and importance with potential investors or partners.

How to Finish Your Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

Other Helpful Business Plan Articles & Templates

Should Your Budget Be Fixed or Flexible?

Understanding the difference between a fixed and a flexible budget is key for any business owner looking for financial stability and growth. The choice between these budgets depends on two main things: how predictable your costs are and how much you expect your economic situation to change.

This article will break down fixed and flexible budgets, how they differ and when to use each type. The goal here is to help you, the business owner , pick the budget that fits your business best. This will improve your decision-making and help your business succeed financially.

Fixed Budget Vs. Flexible Budget

A fixed budget doesn’t change, while a flexible budget changes with your business activity. Both these approaches have advantages depending on your situation.

More by This Author Organic Marketing and Paid Advertisements Are Both Useful. Here’s How to Choose If and When to Use Them.

Fixed Budget: Pros and Cons

Consider a small boutique retail store that plans its budget for the upcoming year. The owner decides on a fixed budget, allocating $5,000 monthly for rent, $2,000 for utilities, $10,000 for employee salaries and $8,000 for inventory purchases. Despite potential seasonal fluctuations in sales, such as a significant increase during the holiday season or a decrease during off-peak months, this budget won’t change.

Here are some of the main advantages of a fixed budget like this.

• They provide control over costs . Your business or team is allocated a set budget and expected to work within it. This promotes discipline.
• They are predictable . You know exactly how much you have to work with up front.
• They are easy to implement . Fixed budgets require less frequent monitoring and adjusting.
• They encourage efficiency . You must find ways to deliver results with limited resources.

Of course, there are disadvantages to fixed budgets as well.

• They lack leeway . Fixed budgets cannot adapt to changing business conditions. This can lead to bad or obsolete budgeting.
• They discourage growth . Requiring managers to stick rigidly to previously set numbers may prevent beneficial new spending.
• They lower morale . Employees forced to follow unrealistic budgets may become frustrated and demotivated.
• They result in waste . Money gets spent just because it was budgeted, not because the spending is worthwhile.

Overall, fixed budgets encourage discipline and control but limit your ability to respond to changes outside your control. We’ll explore the best situations for using this type of budget in a later section.

Flexible Budget: Pros and Cons

Let’s go back to the retail store example. If the owner had chosen a flexible budget instead, they would have set a percentage of sales for each expense category. If sales increase during the holiday season, the budget for inventory purchases would also increase to meet demand. Similarly, if sales decreased in off-peak months, the budget for employee salaries may decrease accordingly.

Here are some primary advantages of a flexible budget.

• It adjusts to changes in activity , allowing for a fair comparison between actual results and the budget. If sales volume decreases, costs are expected to decrease as well.
• It helps you manage costs more effectively . You can break down cost changes into two types: changes due to how much you produce and changes due to how efficiently you use resources. This helps you figure out exactly why your spending deviates from what you planned.
• It motivates you to find ways to reduce costs and increase efficiency as production activities change.
• It prevents overspending during periods of low production by tying budgeted expenses to actual output.

And here are some potential challenges of a flexible budget.

• It requires more effort and analysis to update the budget frequently as production changes.
• It relies on accurately tracking costs and how they relate to production volume. If the cost-volume assumptions are wrong, the flexible budget will be inaccurate.
• You may struggle to separate costs based on sales and effective use of resources. You need training to do this properly.

Essentially, flexible budgets help assess performance better when sales and production vary, and it’s worthwhile for creating better cost control. But you need to do additional analytical work.

Which One Is Best for Your Business?

How do you decide between a fixed and flexible budget ? It all depends on a variety of environmental and business factors. Here’s a breakdown of the factors directly influencing the right approach for your business.

Market Conditions

Let’s start with market conditions . What should you look for when determining your budget type? 

Account for the level of market volatility or unpredictability. If the market experiences frequent fluctuations, a flexible budget may be more suitable. And the opposite is true for a stable market.

Competitive Landscape

How competitive is your industry? If you need to quickly adapt to changes, a flexible budget can help respond to competitive pressures by investing in new tools and platforms or hiring more people .

You need to have a budget that stretches if your tech stack and business practices continuously evolve as technology evolves. Using older tools and platforms can set you back, and it’s critical to leverage new technologies with a flexible budget. For businesses with minimal changes, however, like agriculture or textile manufacturing, a fixed budget works fine.

Seasonality

Evaluate if your business experiences seasonal variations in sales or activity levels. For example, the holiday season means more gift shopping and your business thrives, whereas you have moderate sales at other times. A flexible budget can help accommodate these fluctuations.

Revenue Patterns

These are the revenue patterns you should consider when deciding whether to implement either fixed or variable budgets.

Revenue Stability

Examine the stability of your revenue streams. If sales and revenue are relatively stable over the budget period, a fixed budget may be appropriate.

Growth Potential

Analyze the potential for revenue growth and expansion. A flexible budget is good when growth is promised and allows you to adjust your spending dynamically.

Risk Levels

Assess risk and uncertainty in your business. A flexible budget can help mitigate risks by allowing you to make changes in response to unexpected events.

Uncertainty

Consider the level of uncertainty or risk associated with your business. Do you expect strong variations in income? Flexible budgets provide you with the ability to adapt to changing circumstances and mitigate risks.

Other Factors

Here are additional things to consider when crafting your budget.

Long-Term Planning

Consider the importance of long-term planning versus short-term adjustments or your business. Use a fixed budget for longer-term planning and a flexible budget for shorter-term versatility.

Industry Best Practices

You can follow recommended best practices depending on your industry. For example, healthcare business budgeting studies recommend adopting a flexible budget, incremental budget and other types rather than a fixed one. And governmental institutes could benefit from a fixed budget to provide regular services every year.

New Vs. Established Ventures

When launching a new business or product, it’s difficult to predict exact revenue and activity levels. A flexible budget could help you adjust to necessary expenses. A fixed budget, however, is useful for making sure you don’t overspend.

Long-Term Capital Projects

For major projects spanning years, like building an office, a fixed budget with specific long-term allocations can help control investments.

Your business is unique, and you should keep your needs foremost in mind when planning budgets. These considerations can help you make an informed decision about which budget type will check the most boxes for you and your team.

More on Budgeting This Is Why Your Startup Needs Bookkeeping

Take Control of Your Business Budget

Proper budgeting requires adaptability, strategic foresight and an understanding of business dynamics. By carefully assessing the factors influencing your operation, you can craft a budgeting approach that aligns with your financial goals and operational needs.

Work with a professional financial advisor to ensure your budget is realistic and effective. You should also use budgeting tools , accounting software and other business management software to keep you on track. 

A budget, whether fixed or flexible, is not just a financial document but a road map toward financial stability and growth. Start with the tips shared here to help your business thrive, and you’ll soon elevate your brand to new heights.

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How do business plans differ from business proposals?

Despite the terms being close, business plans and business proposals are two very different things. Their objectives, structure, and content differ vastly.

This guide helps you decipher all of the key differences between the two documents whilst highlighting some of the similarities that cause some entrepreneurs to confuse them. It also outlines what tools you should use to create either type of document. Ready? Let’s get started!

In this guide:

What is a business plan?

What is a business proposal, business plan vs. business proposal: what do they have in common, business plan vs. business proposal: what are the differences, what tools can you use to write a business plan, what tools can you use to write a business proposal.

A business plan is a document providing detailed information about your business and its objectives for the years to come (usually 3-5 years).

To keep it short and simple, a business plan consists of two parts: 

• A financial forecast which provides information about the expected growth and profitability of your business, your potential funding requirements, and cash flow projections.
• A written part which provides the context and details needed to assess the relevance of the forecast: company overview, description of products and services, market analysis, strategy, operations, etc.

Formal business plans are usually written: to secure financing, to get buy-in from stakeholders (board members, investors, business partners) on the plan of action for the coming years, to convince suppliers to do business with the company, or to communicate the company's vision to staff members.

Financial savvy businesses regularly track their actual financial performance against the forecast included in their business plan and re-assess their progress against what was planned, and update their plans as needed.

Need a convincing business plan?

The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

Business proposals have a completely different objective to business plans: their goal is to convince prospective buyers to buy products or services from your company.

They focus on what the company is offering and how it meets client needs. They include details of products and services offered, including engineering schematics, if applicable, service staff, and other details as or if requested by potential buyers.

Types of business proposals include:

• Request for Information (RFI)
• Request for Proposal (RFP)
• Request for Quotation (RFQ)
• And invitation for Bid (IFB)

All of these reflect various stages of a proposal and contain information relevant to that stage. The RFQ, for example, covers the pricing factor for the product.

Business proposals can be solicited or unsolicited:

• Solicited proposals involve companies requesting other businesses to submit their proposal (often as part of a tender) and then a decision is made as to who to go with,
• Unsolicited proposals, however, are sent by the selling company to potential buyers.

While they are both different concepts, there are some similarities between the two. These include:

Decision-making tools

Business plans and business proposals are both used as decision-making tools. They provide essential information regarding business operations, and this is used to make important decisions about the business.

For example, a business plan may help a potential investor decide if they want to invest in their business. Similarly, business proposals help clients decide whether or not they are interested in a particular product or service to help meet their business needs.

Intended to convince the audience

Since both are decision-making tools, their primary purpose is to convince the reader to make a particular decision. This decision often relates to the audience’s involvement with the business, for example, as an investor, supplier, or buyer.

Both types of documents are intended for external use - meaning they are presented to stakeholders to convince them that the business is worth “getting involved in”.

Cover business strategy

Both documents cover specific elements of a business and as a result discuss strategy in one way or another.

A business plan, for example, explains how a business is set up, how it plans to maintain operations and create revenue streams.

A proposal often focuses on how buying the product or services will help the buyer achieve its on strategy.

Need inspiration for your business plan?

The Business Plan Shop has dozens of business plan templates that you can use to get a clear idea of what a complete business plan looks like.

The terms may sound close, but the two documents are very different in application. Here are a few key differences:

One-time use vs. long-term use

Business proposals are intended to be used once as they are created in response to one-time requests or for a single proposal to a potential buyer.

Business plans, however, are used to monitor business performance, and its forecasts are closely followed and regularly updated to ensure that the business is on track to achieve its goals.

Timing differences

The two types of documents are created for different purposes at different times. A business proposal is likely made at a time when a business is looking to expand by adding to its clientele.

A business plan, on the other hand, is often first drafted before a business is even started, as it provides direction for how the business should operate. And then regularly updated every couple months.

Length differences

Whilst business plans usually span between 15 and 30 pages, business proposals vary in length, based on what information the client has requested.

10 pages is usually a good starting point for a business proposal and not many will eclipse this number. This means that a business proposal has fewer pages than a business plan, which makes sense because the latter covers the entire business strategy.

Content variations

The two documents vary greatly in the kind of information that is included in them.

A business proposal, will focus on the fit between the product or service being pitched and the buyers requirements, and the return on investment for the buyer. Based on the requested specifications, the business proposal may go into deep detail regarding product schematics.

A business plan is higher level as it encompasses the business operations. It will typically include a full set of financial statements, as well as forecasts. Such information is typically absent from a proposal, which may, at most, include information regarding product manufacturing costs, pricing, and return on investment for the buyer.

Different audiences

Business plans and business proposals are intended for different audiences. Business plans are often shared with potential suppliers, investors, lenders, or even key hires, to give them a sense of what the business is about.

On the other hand, a business proposal is meant for potential customers to convince them to engage in business with that organization.

In this section, we will review three solutions for writing a professional business plan:

• Using Word and Excel
• Hiring a consultant to write your business plan
• Utilizing an online business plan software

Create your business plan using Word or Excel

Writing a business plan using Word or Excel has both pros and cons. On the one hand, using either of these two programs is cheap and easy to learn.

However, using Word means starting from scratch and formatting the document yourself once written - a process that can be quite tedious. There are also no templates or examples to guide you through each section.

Creating an accurate financial forecast with Excel is also impossible for a business owner without expertise in accounting and financial modeling. And as a result, investors and lenders are unlikely to trust the accuracy of your forecast.

Ultimately, it's up to you to decide which program is right for you and whether you have the expertise or resources needed to make Excel work.

Hire a consultant to write your business plan

Outsourcing a business plan to a consultant or accountant is another potential solution.

Consultants are used to writing business plans, and accountants are good at creating financial forecasts without errors.

This means that they will be able to create an effective business plan with accurate financial estimates without much effort.

However, accountants often lack the industry expertise to accurately forecast sales, and hiring either consultants or accountants will be expensive.

You probably need to budget at least £1.5k ($2.0k) for a complete business plan, more if you need to make changes after the initial version (which happens frequently after the initial meetings with lenders).

For these reasons, outsourcing your business plan to a consultant or accountant should be considered carefully, weighing both the advantages and disadvantages of hiring outside help.

Ultimately, it may be the right decision for some businesses, while others may find it beneficial to write their own business plan using an online software.

Use an online business plan software for your business plan

Another alternative is to use online business plan software . There are several advantages to using specialized software:

• You are guided through the writing process by detailed instructions and examples for each part of the plan
• You can be inspired by already written business plan templates
• You can easily make your financial forecast by letting the software take care of the financial calculations for you without errors
• You get a professional document, formatted and ready to be sent to your bank
• The software will enable you to easily track your actual financial performance against your forecast and update your forecast as time goes by

If you're interested in using this type of solution, you can try our software for free by signing up here .

Simple software such as Word or Powerpoint can be used to create a business proposal.

You could use pre-made templates to create your own proposal, using the layout and content as a guide to what you should and should not include in the proposal.

For solicited proposals in particular, client requirements are the most important attribute. A well-written proposal will cover what the client has requested in-depth and that information will usually be prioritized in the table of contents. You could then move onto other aspects that may not have been specifically requested but that you feel are important to share.

Specialist proposal software can also be used. You can find a list in this article from Hubspot . The main benefit of using proposal software is that they usually integrate directly in your CRM and include eSignature technology making the overall sales process easier and faster.

Also on The Business Plan Shop

• How investors analyse business plans
• Business plan vs budget: what's the difference?

Know someone confused about the difference between business plan and business proposal? Share this article and help them out!

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

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