According to U.S. Bank, the most common reason businesses fail is because they run out of cash. 

Without sufficient liquidity, it’s impossible to pay bills, compensate employees, or keep the business running smoothly. That’s why staying on top of revenues and expenses—and maintaining stable cash flow—is crucial. 

The foundation of all this? A solid budget (also called a business spending plan).

A well-crafted business spending plan gives you visibility over available cash, upcoming expenses, and potential financial risks. It becomes a powerful tool for making wise financial decisions when tailored to your business’ unique market, customer base, and growth opportunities. 

But creating an effective plan requires more than guesswork—it requires thoughtful planning, accurate data, and the right processes.

In this guide, I’ll walk you through simple, actionable steps to create a business budget that aligns with your goals and helps set your company up for long-term success.

What is a small business spending plan? 

A budget, or business spending plan, is a straightforward way for small businesses to keep track of their finances. 

It’s essentially a detailed breakdown of your income and expenses based on past data and any expected changes. Think of it as a financial roadmap that helps you manage your cash flow and make confident decisions about company spending.

A good spending plan is specific, timely, and easy to adjust. Many businesses plan for a full year but check in regularly—often quarterly—to make updates based on how things are going. 

To get the most out of your budget, use accurate data from sales, team expenses, and growth goals. The ultimate goal is to create a clear picture of where company funds are coming from and where they’re going.

Why is a business spending plan important? 

Businesses need to spend to survive and grow. But as the old expression goes, cash is king. Without it, your business will inevitably be limited in achieving its goals. 

Keeping control of your cash and ensuring you have sufficient working capital starts with estimating and matching what you spend (expenses) to what you make (revenue). 

By keeping that balance, business owners can deliver better spend management, ensuring the business has enough cash to cover day-to-day operations and power future growth. 

Without sufficient planning and visibility, though, spending can either surpass available capital — leaving the company in debt  — or fall short of the levels required to achieve growth targets. 

How to create a business budget in 7 steps

Building a solid business budget starts with gathering the correct data. This means combining details like your internal numbers and a clear understanding of your market. 

While it might seem time-consuming, digital tools like a spend management platform can make the process much quicker by automating data collection and analysis.

With a clear picture of your finances, it’ll be easier to identify your working capital and better allocate resources to meet priorities—all while staying aligned with your goals and the realities of the market.

1. Look at your numbers

The first step in creating a business budget is reviewing your financial data. Start by reviewing your historical spending across all categories. 

Understanding where your money has come from and gone in the past is key to getting the bigger picture, and it’ll also form the foundation of your future spending plan.

Here’s what to focus on:

• Historical revenue
  Dive into your past revenue sources. These might be influenced by factors like the number of users or clients, the contracts you’ve signed, or the type of customers you serve.
• Historical expenses
  Break down your past expenses. Some costs may vary—like those tied to your number of employees or the amount of products you sell—while others, like office rent, are fixed and steady over time.

Once you clearly understand what drives your revenue and expenses, you can start modeling for the future. 

Make sure to factor in potential changes, such as shifts in customer demand or raw material costs, along with your own strategic decisions, like investing in new equipment, hiring more staff, or entering a new market.

Remember that your historical data is not a perfect predictor of future performance, but it does provide a valuable benchmark. It can help you identify trends, spot opportunities for cost savings, and ensure your future spending plan is grounded in the reality of your business' past performance. 

2. List sources of income/estimated revenue

Start by identifying how your business generates income, whether it’s through selling goods, offering services, or other revenue streams. This becomes your top-line revenue—the first line on your budget.  

If you have an established business, you can use last year’s numbers or the same quarter from the previous year as a starting point. Adjust these figures based on any changes in market conditions or trends you anticipate.

If your business is new, research industry averages for companies similar to yours. Match those benchmarks to your products or services and the scale of your operations. While estimates won’t be perfect, starting with informed projections will help you create a realistic and actionable revenue forecast.

3. List fixed costs

Fixed costs are predictable — recurring expenses that remain the same regardless of your business's revenue. 

These steady costs form the baseline of your budget and are essential to account for since they’re often difficult to reduce.

Fixed costs include rent, insurance, property taxes, licensing fees, and retainer services like accounting or legal support. Be sure to account not only for your current fixed costs but also for any new ones you expect in the future. 

4. List variable expenses

Variable expenses, such as production costs, marketing campaigns, and logistics, are trickier to predict because they change based on business activities. 

While they fluctuate, they’re not random—there should be a clear logic to how your costs rise and fall, ideally focused on activity that will bring a corresponding increase in revenue. 

Key examples of variable expenses include raw materials, inventory storage, shipping costs, and variable taxes. Salaries may also fall into this category if you temporarily hire additional staff or bring in consultants. 

To create a complete picture, factor in both your current variable expenses and any new ones you anticipate.

5. List predicted one-time spends

Every business faces occasional one-time expenses; planning for them is key to avoiding budget surprises. 

These could include buying new equipment, renovating your workspace, funding a research and development project, or hiring a consultant for a specific need.

While these costs aren’t recurring, they can significantly impact your budget, so it’s important to anticipate them as much as possible. Setting aside funds for one-time expenses ensures you’re prepared and keeps your budget on track when these expenses arise.

6. Add it all into an income statement

After identifying all your potential expenses, it’s time to consolidate everything into an income statement.

This document brings together your projected costs and expected income, giving you a comprehensive view of your financials for the year.

Organizing your data in one place allows you to easily compare your spending against your revenue projections and growth goals. 

7. Review your budget often

A good business spending plan isn’t something you set and forget—it should grow and adapt to your business. 

Market conditions change, sales fluctuate, and unexpected expenses can pop up. Regularly reviewing your budget helps you stay in control of your cash flow and make sure your finances are aligned with your current situation. 

This will also make it easier to catch issues early, adjust for new opportunities, and ensure you always have the resources to keep the business moving forward.

Want to improve your business spending plan? Explore Extend business budgeting tools now

Smart budgeting can be the difference between a thriving business and a struggling one. 

The challenge is that many business owners don’t have the right tools to track, manage, and analyze spending across their company effectively.

With businesses facing rapidly changing commercial environments shaped by new technology, evolving work habits, and rising competition, digital spend management has become a must.

By leveraging a spend management platform like Extend, you can track spending in real-time, take the guesswork out of budgeting, and provide reliable data to help you plan for future growth.

• Manage employee spending at scale using virtual cards for each team member.
• Set budgets by department, function, or employee for better oversight and peace of mind.
• Keep cash on hand longer to preserve working capital and maximize interest on idle funds.
• Generate spend reports to compare budgets with actual performance, identify where investments matter most, and avoid unnecessary budget surpluses.

As technology and innovation continue to speed up, your business will need a budget that can adapt to changing needs. 

Want to learn how Extend can help you improve your business budget? Get in touch!