13 Steps to create a budget for your business

Are you preparing to launch a new business? Whether you’re just about to start an entirely new business or want to expand your existing company, budgeting is one of the most important steps for any entrepreneur. Before you leap into entrepreneur mode and start developing your business, follow the 13 steps below – provided by UK business finance experts Corporate Recovery Help – to make sure your company has a realistic budget prepared ahead of time.

1. Research costs

How much will it cost to launch, run and grow your business? The first step in any business budget is researching the costs involved in the business. Be realistic about your business’s costs to avoid any surprises once you start taking action.

2. Project revenues

How much revenue can your business generate? The second step in preparing your budget is to calculate how much revenue your business is capable of generating and the extent to which it can grow.

3. Figure out gross profit margins

How much of your business’s revenue can you keep as profit? Work out your gross profit margin by deducting the costs of running your business from the amount of revenue it generates each month.

4. Create a 12-month cash flow projection

How steady will your business’s cash flow be? The fourth step in creating a budget for your business is working out how steadily cash will flow into your business from its customers, clients and partners.

Related: How Long Until Your Business is Profitable? Use our Profit Calculator

5. Adjust for unreliable payers

Is your business prepared for unreliable payers? Prepare for missed payments and other financial setbacks ahead of time so that your business is ready if a customer fails to pay their bills as they come due.

6. Adjust for seasonality

Does your business sell a product or service with seasonal demand? Work out how seasonal changes to the level of demand for your business’s product or service may affect its cash flow throughout the year.

7. Adjust for economic and industry trends

Does your business sell a product or service for which demand is growing or one for which demand is decreasing? Look at industry and economic trends to determine if your business has a viable or difficult future

8. Decide how to spend

You've worked out the costs of starting and growing your business – now, how will you spend your budget? Work out how much you need to spend on certain items or services so that you’re fully prepared when it’s time to start your business.

Prioritize essential spending categories: cost of goods sold or service delivery, marketing and customer acquisition, technology and tools that improve efficiency, and building cash reserves. Your specific allocation will depend on your industry and business model, but focus on investing where you'll see the highest return on investment. Learn more about strategic spending and reinvesting profits for growth. 

9. Discuss costs with suppliers

Can you get a better deal on certain products and services by negotiating with your business’s suppliers? Talk to your business’s suppliers to learn how much you need to spend to get your business off the ground and growing steadily.

10. Discuss expenditure with department heads

How much cash does each part of your business need to operate successfully? If you need to spread your budget between several departments, this is a great time to talk to department heads and learn more about their financial needs.

11. Prioritize investment

How should you spend the money your business generates? Step 11 in the process of preparing a business budget is working out how you’ll spend money to fuel the growth and development of your business over time.

12. Create a contingency plan

Is your business prepared for financial setbacks? Your budget should have a detailed plan of action that you can use to recover from financial issues or deal with a missed monthly or quarterly target.

13. Plan regular budget reviews

The best plans don’t stay the same over time – instead, they keep developing as the situation changes. Plan regular budget reviews – once a quarter is a good idea – so that your business is always 100% in control of its financial direction.

Insure your business 

You've put in all the research and hard work, it would be a good idea to insure your investment with a general liability insurance policy to protect that investment so that no unnecessary problem arises.

Frequently asked questions

How far in advance should I create a business budget?

Create your business budget at least three to six months before launching or expanding. This timeline gives you enough time to research costs thoroughly, secure financing if needed, negotiate with suppliers, and make adjustments based on what you discover. For complex businesses or those requiring significant capital investment, start the budgeting process six to twelve months in advance. Early planning also helps you identify potential financial gaps and find solutions before they become critical problems.

What's the difference between a startup budget and an operating budget?

A startup budget covers one-time costs needed to launch your business, such as equipment purchases, initial inventory, business registration, website development, and opening marketing campaigns. An operating budget focuses on ongoing monthly or annual expenses like rent, utilities, payroll, inventory replenishment, and regular marketing. Most businesses need both: a startup budget to get off the ground and a detailed operating budget for the first 12-24 months of operations. The operating budget should account for gradual revenue growth while managing consistent expenses.

How often should I review and update my business budget?

Review your budget monthly during your first year of business to track actual performance against projections and catch problems early. After your first year, quarterly reviews work well for most businesses. However, you should update your budget immediately if you experience major changes like losing a key client, adding a significant new revenue stream, facing unexpected cost increases, or planning expansion. Annual comprehensive budget reviews allow you to incorporate lessons learned and set strategic direction for the coming year.

What percentage of my budget should go to contingency planning?

Allocate 10-20% of your total budget for contingency and unexpected expenses. New businesses should lean toward the higher end (15-20%) because unforeseen costs are common in the first year. Established businesses with predictable operations can maintain smaller contingencies (10-12%). This buffer protects your business from surprises like equipment failures, regulatory changes, price increases from suppliers, or sudden market shifts. Keep contingency funds in a separate savings account so you're not tempted to use them for regular operations.

Should I create my business budget myself or hire a professional?

For simple businesses with straightforward revenue and expenses, you can create an initial budget yourself using templates and accounting software. However, consider hiring a CPA or financial advisor if your business involves complex revenue streams, multiple departments, significant inventory, employee payroll, or if you're seeking outside investment. Professional guidance typically costs between a few hundred to several thousand dollars but can prevent costly budgeting mistakes and ensure your financial projections meet investor or lender standards. At minimum, have a professional review your self-created budget before finalizing it.