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Why you need a budget


Budgets are essential for tracking the financial health of your business. Your budget is your planned income and spending. It helps you to allocate funds for particular items and activities.

Your budget also helps you to:

  • set business goals
  • make good business decisions
  • get finance

1. Create your budget


If you’re starting out in business, there are things you’ll need to include when preparing your budget.

Time frame

Choose a time frame for your budget depending on the needs of your business. You might choose monthly, quarterly or yearly budgeting.

Fixed costs

You’ll need to enter all your fixed expenses like your salary, rent, insurance and any other known costs.

Tip: When starting out and deciding on your salary, find a balance. Consider what you would pay someone else to manage your business and pay yourself that amount.

Variable costs

You’ll need to enter all your variable expenses like:

  • utilities
  • costs of materials
  • staff wages

If you’re not sure, estimate the maximum amount you expect to spend over the budget period.

Tip: If you can, turn your variable costs into fixed costs. It may end up saving you money and will become an expense that you know to expect.

Income

You’ll need your expected business income for the budget period. Once your business has been running for a while you can look at past periods to get an idea of what income to expect.

Tip: Be conservative when predicting your income – give yourself some flexibility in case things change.

Prepare your budget

Your accountant or bookkeeper may help you to prepare your budget. But you should always check it carefully for accuracy and ask questions. With some basic financial knowledge, you can make sure your budget is accurate and up-to-date. Check out our handy templates to help you prepare different budgeting financial statements.

2. Monitor your budget


You’ll need a basic bookkeeping system set up to keep track of your finances. Throughout the budget period, keep an eye on how you’re tracking against your budget.

Actuals – comparing actual results to budgeted amounts

Record your business’ actual income and expenses during the budget period. Calculate the difference between your budgeted amounts and your actual results.

3. Use your budget


Use your budget analysis to help you make business decisions.

If you’re spending too much:

  • look for ways to cut costs
  • avoid spending money on anything that isn’t essential to running your business

If you have extra funds, think about:

  • ways to reduce debt
  • creating a financial safety net
  • growing your business

Tip: analysing your budget will help you find seasonal patterns. You can see if decisions like changing prices or adding a new product or service, are the right ones.

4. Understand budgeting versus forecasting


Your budget is your planned revenue and spending. It allows you to allocate funds. Consider preparing a budget quarterly or yearly.

Forecasts are usually more frequent, often monthly. A forecast predicts past and current trends in your financial statements. This gives you a more realistic idea of how your business is going and help you to avoid problems.

Cash flow forecasting is one of the most important forecasting tools for business. It can also help you keep on top of your bills. It’s useful if you’re trying to get finance – it shows lenders you can pay them back.

5. Use our free financial templates


Start preparing your own financial reports with these free templates:

Start up costing

If you're thinking of starting a business, a start-up costing template can help your work out how much money you need to start. This can help you get the right amount of finance and money you need to invest from other sources. You can prepare your start-up costing well before you start your business.

Cash flow

A cash flow statement is one of the most important tools in managing your finances. It tracks all the money flowing in and out of your business. It shows payment cycles (or seasonal trends) when you need extra cash. These cycles help you to plan ahead and make sure you always have money to cover your payments.

Profit and loss or income statement

A profit and loss statement lists your sales and expenses each month, quarter or year. It tells you how much money you're making or losing. Use it to develop:

  • sales targets
  • an appropriate price for your goods or services

Balance sheet

A balance sheet is a snapshot of your business on a particular date. It lists all your assets and liabilities and works out your net assets. A balance sheet can also show your:

  • working capital – money to fund day-to-day operations
  • business liquidity – how quickly you can pay your current debts

This shows the financial health of your business.