How to Create a Smart Business Budget for 2025
Inadequate management and financial hurdles are two of the most common reasons over 595,000 small businesses close each year. A smart business budget can mean the difference between meeting KPIs and goals and being unable to cover overhead expenses.
What is a smart business budget and how do you create one?
We’re going to walk you through the steps of creating a business budget that sets you up for success in 2025.
7 Steps to Create a Business Budget in 2025
1. Make Sure Your Books are Accurate
Before you even start creating a budget, make sure that your books are accurate. Accurate books will help you create a realistic budget and monitor and adjust it as needed.
When your books are organized and up to date, you can easily review your income and expenses.
If your books are in disarray and out of date, however, your budget will be based on guesswork. In this case, a little catch-up bookkeeping should be in order. You can tackle this task yourself, or hire a professional, like Redmond Accounting, to assist with your bookkeeping needs.
Get in touch with us to schedule a consultation and see how we can help with your bookkeeping.
2. Leverage Technology for Real-Time Visibility
Financial technology tools, like QuickBooks, BILL and Expensify, can help you maintain real-time visibility of your finances, making it easy to track and adjust your budget as necessary.
Many of these tools offer AI-powered features that make it easy to analyze your financial data and make informed decisions on how to allocate your resources and where to cut back on expenses.
3. Consider the ROI of Every Expense
As a business owner, you know you must spend money to make money. Every business has overhead and necessary expenses to maintain operations, but it’s easy to spend money without considering its purpose or return.
Go through your expenses with a fine-tooth comb and ask yourself, “What does this expense give me in return?” If it does not help you reach your goals, then you may want to rethink your decision.
If you take this approach to every expense, you can eliminate unnecessary expenses and ensure that you stay on budget.
Getting into the habit of analyzing every expense will also help you create one of the most effective types of business budgets: a zero-based budget.
4. Create a Zero-Based Budget
Zero-based budgeting requires you to justify every expense (both old and new) for each new period. This type of budget starts at zero and ignores past spending.
Here’s how it works:
- You start with a “zero base.”
- Every function within the business is analyzed to determine its needs and costs.
- Budgets are then built around what the business needs for the upcoming period, no matter whether they are higher or lower than the previous ones.
Every business expenditure is reviewed without using the last period’s actuals as a baseline to determine whether the spending will be maintained, increased, reduced or removed entirely.
The beauty of zero-based budgeting is that it can be applied to virtually any type of cost, whether it’s operating expenses, capital expenditures or even research and development (R&D) costs.
5. Monitor Your Key Performance Indicators (KPIs)
Creating a budget is just one piece of the puzzle. It’s equally important to ensure that you’re monitoring your progress and staying on track.
Tracking your key performance indicators, or KPIs, can help you assess your performance and make adjustments as needed.
Every business is unique, so you may have specific KPIs that you want to monitor. However, most companies can benefit from tracking:
- Gross profit margin
- Customer acquisition cost
- Burn rate
Tracking these KPIs and any other metrics that you find valuable and relevant can drive your decision-making and help you optimize your spending or investments based on your performance.
6. Keep Business and Personal Finances Separate
It should go without saying that you should keep your business and personal finances separate. When you commingle finances, you make it more difficult to create a realistic budget and track your expenses.
Make sure that you’re maintaining separate credit card accounts and bank accounts for your business and personal finances.
7. Review and Adjust Your Budget Regularly
Budgets are never set-it-and-forget-it. They must be reviewed and adjusted regularly using your financial statements.
Many businesses review and adjust their businesses quarterly, but monthly or yearly adjustments may make more sense for your operations.
Final Thoughts
Budgeting is an important part of managing a business. It ensures that you’re allocating your resources properly and avoiding overspending. But managing the finances of your business can be challenging.
Consulting with a professional or hiring someone to manage your bookkeeping can make budgeting easier and more effective.
Schedule a consultation to learn more about how we can help with your bookkeeping needs.
