How to create an effective business budget

While turning a passion or dream into a business enterprise can be an exciting adventure, some realities of running a business may seem less appealing to tackle – including how to finance your business properly.

Between March 2021 and March 2022, over 753,000 new businesses were set up in the UK.

However, two of the most common causes of UK start-up failure are running out of funds and pricing issues.

There’s more to business finance than just setting a price and paying your taxes and creating a business budget can be a good place to start.

Read our 9 tips for starting a business on a small budget.

Researching your business budget

If you’re starting your own business with little or no start-up experience, it can be challenging to get a clear picture of costs, from overheads such as salaries to variable expenses such as shipping or materials.

Before setting a business budget, it could be worth spending some time researching what costs are associated with setting up the kind of business you want.

A budget for opening a café may be different to the one needed to set up an online shop or boutique, with different types of costs involved.

Calculating your income and costs can be a good idea, including how much you charge for your products and services and how many sales you would need to make a profit.

When researching your business budget, there are several things you could consider including:

  • looking at what prices your competitors are setting
  • talking to wholesalers to explore cheaper costs
  • contacting multiple suppliers to get a better idea of pricing before committing
  • researching any government grants that could help cover expenses
  • networking with other start-up owners to ask how they arranged their business finances initially.

Find out if a Start Up Loan could help get your business off the ground.

How to create a business budget

A business budget is critical for creating a clearer picture of your start-up’s finances and could help make more accurate financial projections.


When creating a business budget for your start-up, there are different types of costs you should consider including:

Fixed expenses/overheads

These are regular, fixed monthly costs not tied to your business’s success.

This means you’ll always need to pay these costs regardless of the monthly sales or amount of money your business makes.

Regardless of your start-up’s performance, these expenses are essentially “fixed” and must be paid for.

Typical examples of fixed business expenses can include:

Variable expenses

Variable expenses are monthly expenses that fluctuate, usually in line with business activity, but are still necessary to keep your start-up running daily.

Common examples of variable expenses can include office supplies, stock, freelancers, marketing and advertising, and workspace energy and water costs.

For example, packaging and shipping costs are variable.

If your business sells and ships lots of products in one month, its packaging and shipping costs will increase in line with the additional sales.

If sales fall, then packaging and shipping costs may also reduce.

Variable costs, therefore, vary depending on business performance.

Read our guide on how much to spend on digital marketing for your start-up.

One-off or exceptional expenses

These costs don’t happen often but could be essential to making your business goals a reality or keeping your start-up running.

These one-off costs could include buying speciality equipment and paying for ad-hoc repairs.

You can find out more on the government website.


Your start-up’s income may be an influential factor when setting a budget, as it will ideally be spent generating more income.

A business’s typical income is through product sales and service fees.

However, income can be from any source, including rental, interest on commercial loans given, grants, and returns of other investments made by your start-up.

An income budget is a projection of the income you expect to receive over a financial year.

To set an income budget, there are a few factors you may need to seriously consider, including:

Business budget planning tips

Prepare for the worst

Sometimes unexpected problems can arise.

To protect your business, it may be wise to keep a pot of money aside to help minimise any potential damage caused by disruption.

Having a good amount of working capital can mean your business can weather unexpected costs and still meet its regular, ongoing costs.

Read more on how to manage finances during difficult times.

Prioritise fixed expenses

When factoring in all the costs needed to create a business budget, you could avoid potential financial issues by prioritising fixed expenses.

Because they are non-negotiable expenses, it’s essential to have money available to cover them as soon as they need to be paid.

Regularly review your budget

Regularly reviewing your budget can be one way to stay on top of your business finances.

Doing this could help you recognise where to adjust spending on your business, understand your business’s financial reality, and keep your expectations in check.

Monitor cash flow

Just because you have set a business budget doesn’t mean it needs to be rigidly followed.

Regularly monitoring your cash flow could ensure your start-up is sticking to the budget and help identify any areas needing financial adjustment.

Be prepared to adjust your plan if needed.

Be realistic with your expectations

Starting and running a business can cost a lot of money, but it can still be done on a tight budget.

It could be worth researching the financial reality of running a business to keep your expectations realistic and taking time to understand all the costs that could be involved.

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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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