As a small or midsize business owner, you understand the importance of having a budget, sticking to it, and monitoring it on a routine basis. With proper budget management, yours can become a highly effective tool to help boost your financial growth, guide financial decisions, minimize or avoid overspending, and more.
There are actually several types of business budgets you can create for your company, each one customized to match your needs or goals for your company.
9 Types of Business Budgets
Depending on your financial or company goals, you can establish and utilize a number of business budget types, including:
1. Master Budget
We’re starting strong with the master budget, which tracks all your company’s revenue sources and expenses. The master budget works to create your complete financial picture by monitoring all of your smaller, more focused budgets, including:
- Cash flow
- Capital
- Static
- Operating
- Sales
- Production
- Materials
- Labor
- Overhead
2. Operational Budget
An operational budget, sometimes called an operating budget, includes all revenues used for business operations, and it factors in all company expenses you can expect to pay monthly, quarterly, or annually. Operational budgets are usually a combination of several smaller budgets, such as your budgets for:
- Materials and supplies
- Production processes
- Sales
- Labor
- Overhead
- General expenses
The operating budget provides a helpful outline of your finances and shows:
- The amount your company requires for business operations and growth
- The flow between your revenue(s) and your fixed costs, variable costs, and additional expenses
3. Sales Budget/Sales Tracker
A sales budget is useful in knowing how much revenue to expect in a certain period. By tracking your sales-specific revenue and expenses, you can see how much money should go toward sales and predict how much income to expect. Use your sales budget to get an idea of average sales in a week, month, or year, and use it to compare sales rates between seasons.
A sales budget includes:
- Services and products your company offers
- Price points for each item offered
- Sales figures for each item and/or all items sold in a specific period (day, week, month, year)
4. Production Budget
Your production budget shows you your cost of production, or how much money it takes to produce each product or provide each service within a particular timeframe. It also tells you how many products or services are needed to meet your sales goals and how much inventory is required. Plus, you can use your production budget to determine the prices your customers need to pay for your offerings.
Your production budget includes:
- How many products or services you expect to sell within a certain period (week, month, quarter, or year)
- How much material you will need to meet sales requirements
- How much inventory you have at the start of the period
5. Labor Budget
Your labor budget is centered around your employees, both the ones you currently have and the ones you are planning to hire. Your labor budget helps show how many employees it takes to keep business operations moving and meet production goals and how much you can afford to pay.
Your labor budget should consider:
- Production budget and goals
- Sales Budget and goals
- Labor hours needed for production or sales
6. Overhead Budget
Your overhead budget calculates any of your variable or fixed expenses within a particular period (often month, quarter, and year).
- Fixed costs can include anything from rent, insurance, taxes, payroll, etc.
- Variable costs can include supplies and materials, commissions, delivery costs, utility costs, or anything else that varies based on use or volume of activity within a certain period.
7. Cash Flow Budget
Your cash flow budget is a crucial component in your master budget as it shows you how much money comes in and how much money goes out within a certain period. Your cash flow budget includes all your revenues and all your expenses within a month, quarter, or year.
By tracking your cash flow, you can:
- Determine cash flow patterns throughout the year
- Make more informed financial decisions
- Discover any issues with any of your revenue streams or expenses
- Stop or prevent overspending
8. Financial Budget
Your financial budget helps you plan short-term and long-term financial goals and organize the strategies necessary to achieve those goals. Using tools like your cash flow, sales, production, and other budgets, you can create targeted financial goals and design management systems that will help your team work to reach the goals set in place.
Your financial budget is a crucial part of your active business plan and should be considered a roadmap of sorts, complete with metrics to track and goals to strive toward.
9. Capital Budget
Whenever you’re looking to purchase a large asset (I.e., heavy machinery or equipment, vehicles, property, etc.), you can benefit from creating a capital budget that will help you see how the expense and ROI compare to one another.
A capital budget should include:
- The total cost of the asset
- Upfront costs
- Expected monthly payment
- The payback period
- The asset’s ROI
- Other budgets, like your cash flow and financial budgets
In order to know how well your business is doing, you have to track and budget. Create your budgets confidently with help from ClaytonCarter.
With more than 30 years of experience as a CPA, Cristen Carter can help you think through your finances and create realistic, effective budgets for your business. By partnering with her firm, you will have expert eyes on your finances, tracking cash flows, pinpointing issues, and detecting areas to help increase margins and build an even healthier financial picture.
Contact our team today to change how you budget for your business! (478) 621-4145
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