How to Create a Business Budget
Whether you’re starting your first business or have years of entrepreneurial experience, a comprehensive business budget is a must. A business budget should include an overview of how much you plan to spend (your expenses) and how much hope to make (your revenues). A clear budget can help you reach your revenue goals while also letting you know when you’ve actually attained certain benchmarks!
There are three main parts to a business budget: revenues, expenses, and profits – profits are your revenues minus your expenses. For revenues and expenses, an existing business should rely upon historical data (i.e., your past actual business performance), while startups will necessarily make educated (ie: not aspirational) guesses.
When estimating your new business’s profits, try to conceptualize your anticipated profit margin. You can calculate this by dividing your estimated profits by your estimated revenues (the total number is often expressed as a percentage). For example, if your expected revenues are $100k and your expenses are $85k, then subtract your expenses ($85k) from your revenues ($100k) to get your profits: $15k. Divide your profits ($15k) by your revenues ($100k), and you get a 15% profit margin. Is this good enough? That’s entirely subjective: a good profit margin can vary widely, depending on your geographic location, customer base, and scope of services. Chat with other providers in your area whose practices you seek to emulate, and discuss realistic expectations with them.
Expenses can be easier than revenues to quantify. Consider your fixed costs like rent as well as your variable costs like salaries. The sum of all line-item expenses equals your total expenses.
We’ve included the following template and reflection questions to get you started. Reach out if you’d like more help!
Summary: 5 tips for a successful business budget
1. Be flexible: If at first revenues don’t match expenses, then adjust your expenses; during your first year of budgeting, you may have to make a lot of adjustments, and that’s ok.
2. Estimate conservatively: Underestimate your revenue and overestimate your expenses to account for unforeseen events.
3. Budget emergency cash: Save a portion of each month’s revenue for unexpected expenses.
4. Review your budget monthly (at a minimum): Review spending and determine if you spent over or under your budget. If revenues are lower than you anticipated, start reducing your expenses.
5. Show restraint: Be cautious with spending on big-ticket items, and use your budget to reign in unnecessary spending.
Questions and Guidelines
Where will you get startup funding?
Personal savings: $____________
Financing, such as bank loans or credit cards: $____________
An investor: $____________
How will money be spent?
What are your start-up costs?
Office security deposit: : $____________
Business license fee: $____________
Business formation costs (filing fees, etc.): $____________
Medical billers: $____________
Treatment table: $___________
Exercise equipment: $____________
EMR software initial fee: $____________
What are your ongoing monthly costs?
Health insurance: $____________
Liability insurance: $____________
Disability insurance: $____________
Technology & software:
EMR software: $____________
Professional email: $____________
*** HIPAA-compliant products typically have ongoing monthly fee
Rent (if using a brick-and-mortar space): $____________
What benefits do you currently receive at work that you’ll need to personally cover now?
Continuing education courses
Licensure renewal fees
Time to reflect!
- If you have chosen to open your practice independently or with a business partner, is that decision supported by your budgetary considerations?
- If you have chosen to be entirely cash-based or contracted with insurance, is that decision supported by your budgetary considerations?
- How long can your business survive without being profitable?
- How long can your business survive without you taking a salary?
- Review your budget in conjunction with your business plan. Do they match? Do you need to modify either document to reflect realities surfaced by the other?
- Do you know which financial liabilities are cash-only obligations (meaning they can’t be put on credit cards and require you to have that money on-hand)?
- Have you consulted with an attorney to ensure that you’re observing corporate formalities and your personal assets are protected from your business liabilities?
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.
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about the author
Erin Jackson is Jackson LLP’s Managing Partner. She is responsible for all aspects of firm management, is a sought-after speaker for healthcare conferences, and is a published author. She is specifically focused upon the intersection of the patient experience in healthcare with the legal and ethical responsibilities of providers.
How To Start a Business Budget, Inc.
How to Make Your Business Budget Work, the balance (Jun 14, 2016).
Know Where Your Money Goes: Create a Business Budget in 5 Simple Steps, Fresh Books (June 20, 2017).
How to Create a Simple Budget, Entreprenuer (May 15, 2009).
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