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Why Is Budgeting Important in Business? 5 Reasons

• 06 Jul 2022

There are few skills as critical to running a business as budgeting. Yet, over half of the executives surveyed in a 2019 McKinsey study report feeling dissatisfied with the transparency surrounding their organizations’ budgets.

Any employee—especially managers—should understand budgeting and how it can profoundly impact an organization.

Here’s a primer on the importance of budgeting in business.

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What Is Business Budgeting?

Budgeting is the process of preparing and overseeing a financial document that estimates income and expenses for a period. For business owners, executives, and managers, budgeting is a key skill for ensuring organizations and teams have the resources to execute initiatives and reach goals.

A basic budget consists of projected income and expenses for a given period (for instance, the upcoming quarter or year). After expenses are subtracted from projected income, the leftover money can be allocated to projects and initiatives, ensuring you’re not planning to overspend.

Budgets from previous periods can be compared to the company’s actual financial allocation and performance, giving an idea of how close predictions were to actual spend.

For example, imagine you allocated $10 million for your company’s annual corporate social responsibility (CSR) project. Unforeseen circumstances caused it to run $1 million over budget, and that money had to come out of other projects’ budgets.

During the project’s postmortem, you ask questions like, “Why did we run over budget? Was this an issue of inefficiency or misallocation?” When creating the budget for next year, you use those insights to tighten the process and keep the project’s spend at $10 million or more accurately allocate funds to other projects.

Types of Budgeting

There are several budgeting types that each prioritize different factors when approaching a financial plan. These include:

• Zero-based budgeting , which sets each item at zero dollars at the start of periods before reallocating
• Static budgeting or incremental-based budgeting , which uses historical data to add or subtract a percentage from the previous period to create the upcoming period’s budget
• Performance-based budgeting , which emphasizes the cash flow per unit of product or service
• Activity-based budgeting , which starts with the company’s goals and works backward to determine the cost of attaining them
• Value proposition budgeting , which assumes no line item should be included in the budget unless it directly provides value to the organization

The right budgeting type varies by company and situation. If your organization is in financial distress, the zero-based method may be the best fit, as it starts from scratch each period. Trying out several methods is a good way to determine which is ideal; when doing so, ensure your entire organization is aligned.

Related: 6 Budgeting Tips for Managers

Why Is Budgeting Important?

Budgeting involves number-crunching, attention to detail, and making informed decisions about fund allocation—but it’s well worth the effort. Here are five reasons budgeting is important in business.

1. It Ensures Resource Availability

At its core, budgeting’s primary function is to ensure an organization has enough resources to meet its goals. By planning financials in advance, you can determine which teams and initiatives require more resources and areas where you can cut back.

If, for instance, your team needs to hire an additional employee to scale efforts, budgeting for that in advance can allow you to plan other spending.

2. It Can Help Set and Report on Internal Goals

Budgeting for an upcoming period isn’t just about allocating spend; it’s also about determining how much revenue is needed to reach company goals.

You can use budgeting to set company-wide and team financial goals that align with them. This is especially prominent when using activity-based budgeting, but it’s beneficial no matter which type you use.

Financial goals should be attainable enough that you count on them to inform the rest of your budget allocations. Your goals inform the expenses needed to reach them and vice versa.

You can also use budgeting to update employees on progress and revisit the next period’s goals. For instance, if your company aimed to gain 10,000 new users this past year but fell short by 4,000, what could you have done differently? Does the initiative require fund redistribution? What resources could have propelled progress?

Tracking progress, or lack thereof, allows you to align your team and plan for growth in the next period.

3. It Helps Prioritize Projects

A byproduct of the budgeting process is that it requires prioritizing projects and initiatives. When prioritizing, consider the potential return on investment for each project, how each aligns with your company’s values, and the extent they could impact broader financial goals.

The value proposition budgeting method forces you to determine and explain each line item's value to your organization, which can be useful for prioritizing tasks and larger initiatives.

4. It Can Lead to Financing Opportunities

If you work at a startup or are considering seeking outside investors , it’s important to have documented budgetary information. When deciding whether to fund a company, investors highly value its current, past, and predicted financial performance.

Providing documents for previous periods with budgeted and actual spend can show your ability to handle a company’s finances, allocate funds, and pivot when appropriate. Some investors may ask for your current budget to see your predicted performance and priorities based on it.

5. It Provides a Pivotable Plan

A budget is a financial roadmap for the upcoming period; if all goes according to plan, it shows how much should be earned and spent on specific items.

Yet, the business world is anything but predictable. Circumstances outside your control can impact your revenue or cause priorities to change at a moment’s notice.

Consider the onset of the coronavirus (COVID-19) pandemic in 2020. The economic impact of travel bans, lockdowns, and other safety precautions was far-reaching and unexpected. Executives were forced to quickly—yet thoughtfully—rework budgets to account for major losses and newfound safety concerns.

More than two years later, executives are rethinking their budgeting procedures to make it easier to pivot if needed. One shift noted by McKinsey is the turn toward zero-based budgeting to determine the minimum resources necessary to survive as a business—should the circumstances call for it.

A budget gives you a plan; maintaining an agile mindset enables you to pivot that plan and help lead your organization through turbulent times.

Learn to Budget Effectively

Anyone can learn to budget effectively and reap the benefits. To build a foundation of financial literacy , gain a deeper understanding of the levers that impact an organization’s finances, and discover how budgeting can enable you to become a better leader and manager, consider taking an online financial accounting course .

Do you want to take your career to the next level? Explore Financial Accounting —one of three online courses comprising our Credential of Readiness (CORe) program —which teaches the key financial topics needed to understand business performance and potential. Not sure which course is right for you? Download our free flowchart .

About the Author

What a Budget Is and Why Your Business Needs One?

A budget is an essential planning tool for estimating your business’s future revenue, expenses and profits. It helps control spending and identify potential problem areas where revenue might not cover spending and potential growth opportunities when you may have extra cash that could be invested in new opportunities. A detailed, realistic budget can also help the company secure funding from banks and investors.

What Is a Budget?

What is a business budget? It’s an overall view of your business’s finances. It lists information about the current state of your financial situation, as well as estimates for future spending and income. It includes regular revenue, expenses, capital expenditures and commitments such as loans. Your budget helps guide the decision making of your business. Budgets are usually made for a fiscal year and monitored on a regular basis—at least monthly.

What Makes a Good Budget?

Comparing estimated and actual revenue and expenses will help you know if you’ve got enough money to stay afloat, if you need to make cuts and if you’re turning a profit. A good budget provides enough detail and lays out a plan so you don’t spend more money than you take in, but at the same time you spend enough to strategically grow your business and keep it competitive. A business budget should include the following four key components:

• Income: This is usually sales revenue. Some businesses may also have income from other sources, such as grants, investments and fees.
• Operating expenses: Your business’s day-to-day running expenses . These are divided into fixed and variable expenses. Fixed expenses are usually the same from month to month and are paid on a regular basis, like rent or employee salaries and wages. Variable expenses are expected but may change depending on usage, production and sales, and other market influences. They can include the price of raw materials, labor and the cost of distribution for your goods and services.
• One-time expenses: These include capital expenditures and acquisitions.
• Profit: The most important profit measure is usually net income, also known as the bottom line.

Key Takeaways

• A budget sets targets for your business’s revenue, expenses and profits.
• Budgets typically forecast performance over a twelve-month period but can also be produced semiannually, quarterly or monthly.
• Monitoring the variance between budget forecasts and actual business performance can provide insights into business conditions and the overall financial health of your company, as well as different departments and areas. Creating budget estimates for different scenarios can help you make strategic decisions for your business.
• Using a budget as a management tool can rein in spending and motivate staff.
• A well-managed budget can help your business obtain loans at affordable interest rates.

Business Budgets Explained

A business budget maps out your financial landscape and lays out the path that you want to follow. To build a budget, start by documenting your business’s current financial situation. List all revenue, expenses and profit. Then use the budget to forecast future scenarios with planned revenue and expenses. Use the budget to set goals and better understand what revenue you’ll need to generate in order to cover expected costs. Monitor your progress regularly and track actual spending and revenue versus projections.

Typically, business budgets cover a 12-month accounting period. It can also be helpful to break down the budget into semiannual, quarter and month segments. Most budgets correspond with the fiscal year, or the time period used for financial and tax reporting purposes.

What are the three types of budgets?

The different kinds end with a surplus, deficit or are balanced. Although those terms are more commonly used to describe government budgets than corporate budgets. In government, the terms generally describe whether there’s enough tax revenue to cover costs.

• Surplus: Revenue exceeds expenses, and the company turns a profit.
• Deficit: Expenses exceed revenue. The business loses money—at least temporarily. Sometimes, it’s reasonable for a budget to be in deficit at the end of the period. For example, suppose you want to invest in new machinery to increase production and boost revenue potential. The cost of that machinery may exceed your revenue for that period, but increased production should result in higher income and profits in the future.
• Balanced: Income equals expenditure. The business breaks even.

Your budget tells you where your finances should be heading. It’s also important to monitor actual income and spending against your budget. Some variance is normal, but if actual income is consistently below budget or actual expenditure is consistently above, it can be a warning that your businesses is facing unexpected financial difficulties.

Variances in actual income and expenditure can also give you information about the business environment. For example, you might find that your income increases more than expected in the run-up to Christmas or declines more than you had expected in August. This information can help you plan supplies and manage cash flow to carry the business through future seasonal fluctuations.

Why Is a Budget Important in Business?

Creating and monitoring a budget can seem like a lot of work, especially if your business is simple and you have no immediate plans to expand or make significant changes. But using a budget to manage your business confers three important benefits:

• It can prevent overspending. Spending can easily run amok, so measure it regularly against your planned expenses in your budget. By comparing planned versus actuals in your budget, you can see when spending creeps up or income is not keeping pace with expenses. You can make adjustments and corrective actions to prevent a deficit.
• It can help motivate employees. Use your budget to share business objectives with your staff. It can also be an insightful tool to set goals for revenue and cost cutting. In some cases, connecting bonuses and commissions to performance can help motivate your employees. If you have staff with spending authority, encouraging them to collectively monitor expenditure against budget can foster teamwork and cooperation to help the company hit its targets.
• It can help you get business funding. When seeking outside funding, investors and banks will review various aspects of your business from different financial statements . A detailed operating budget shows them what it will cost to operate the business in terms of expected future revenue and expenses. A well-managed and thought-out budget can give banks and investors confidence in your strategy and company.

Benefits of a business plan: A business plan sets your strategic goals, establishes priorities, outlines short- and long-term targets, identifies funding needs and sources and lists key stakeholders. Business plans typically encompass a long-term view—usually five years or more. They’re essential for new businesses, as well as established companies.

Budgets and business plans: A detailed budget is a key element in any business plan. The budget sets your short-term financial goals and feeds into your business plan’s longer-term targets. The role of accountants and the way planning and budgeting is incorporated into broader business goals is growing. Accountants aren’t just reporting information, managerial accounting analyzes data to project trends and monitor business performance.

How Business Budgets Work

Business budgets look at how much cash you have and how much you’ll need. A budget is a tool for you to predict if you’ll have more funds coming in than you pay out. You should be realistic with your financial projections . And you may want to underestimate your financial performance, or create separate conservative, middle-of-the-road and ambitious budgets. Budgeting can be especially tough if you’re just getting started and you don’t have historical data to examine. In that case, try to create financial forecasts based off sales figures and information you can glean from peer companies. Financial planning software can help with this step.

Each month you should check your forecasts against actuals . This can help you make decisions and forecasting scenarios with budgets attached can be a useful exercise.

For example, if you are considering taking on additional staff, you can examine the budget impact of adding a permanent employee compared to using temporary contractors or asking current staff to work overtime. If you are thinking about investing in more equipment to increase production, you can experiment with different income estimates to see how much you would have to increase output to justify the capital expenditure .

Budgets help you make wiser business decisions. By removing emotion from purchase decisions, and instead focusing on staying within a budget that reflects strategic priorities, your business can more easily achieve goals and turn a profit.

Your business budget should be detailed enough to give you a clear picture of income and expenses. But too much detail can weigh down your budget. For example, you may include office supplies in your budget. But you don’t need to write out the specific amount for paper clips, highlighters and pens separately. A general category will suffice in most cases.

You can use your budget to set sales and operating profit targets for your business. Your budget can help you identify challenges such as high costs or poor cash flow. A well-thought-out budget can help your business qualify for a bank loan at reasonable interest rates or attract funding from investors.

Types of Corporate Budgets

Different circumstances might warrant different approaches to your budget processes. Depending on things like external market forces, the maturity of your business and the reliability of your historic data, you may choose either a static or flexible budget.

Static vs flexible

Static budget: A static budget is more straightforward and easier to manage than a flexible budget. You create the budget at the start of an accounting period using the best available information at the time. Start by considering historical data and expected revenue and expenses to create a budget for the fiscal year or other accounting period. List out expected revenue and spending by category. Then as the year progresses, monitor actual business performance against the budget. Typically, static budgets are established a year in advance and broken down into quarterly or monthly sections for monitoring purposes.

The advantage of a static budget is that you can see variances between the budget and actual business performance. This tells you how accurate your estimates are, and it provides insight into business conditions. For example, if your start-of-year estimates assumed no adverse weather conditions, but in August your business suffered a sudden interruption because of a hurricane, the effect on every item of income and expenditure would show up as variances against your original estimates. With a sufficiently detailed budget, you’d know not only the impact on your bottom line, but also which aspects of your business were most affected.

However, a static budget also has downsides. When the outlook is uncertain or your business is changing, you may find a large variance between estimated and actual income and spending. Also, with static budgeting, you’re making assumptions based on historical and predicted information. Your estimates may prove to be off.

Flexible budget: If you have a dynamic business or you operate in uncertain business conditions, you might opt for a flexible budget that you can update with new information. Unlike a static budget, a flexible budget is designed to adjust based on the activities of the business. One mechanism for doing this is to express costs as ratios instead of fixed values; for example, a company may budget 40% of revenue for staff salaries.

Fast-growing businesses might opt for a flexible budget. You can examine different scenarios, such as investment opportunities and monitor their effects on the budget more easily. For example, if a manufacturing company has to use more machine hours in March vs February, then its budget should logically increase in March. Conversely, if it uses them for few hours, its budget should reflect that decline. Therefore, most companies that have variable business costs each month or even quarterly have flexible budgets.

Flexible budgets are also useful when the business outlook is uncertain, since income and expenditure can vary significantly under these circumstances. For example, if sales unexpectedly increase significantly, you’ll need to order more supplies than you originally budgeted for. With a flexible budget, you can set up a relationship between sales revenue and cost of supplies so that the money budgeted for supplies automatically adjusts in line with sales revenue.

However, to manage a flexible budget, you’ll need a good grasp on the relationship between your revenue and spending. And don’t forget to set aside time to keep your budget up to date, as it’s more labor-intensive than a static budget.

How to Build a Budget

When building a budget for your business, start by deciding on a static or flexible budget. If you’ve never prepared one before, a static budget might be a good place to start. However, if you are an experienced business manager facing a period of uncertainty, you might consider creating a flexible budget. The decision will affect the way you develop your budget.

Next, set the accounting period for your budget. Common lengths are three months and one year. Set up a regular schedule to review and monitor spending and revenue. This is usually done at least monthly.

Components of a budget: Gather information and set expectations for each of the primary components of the budget—sales revenue, fixed and variable operating expenses and capital expenditures. Use that to calculate expected profits—or the difference between revenue and spending.

Examine financial statements to gather much of the information and to help you understand where your business sits financially. Looking back at historical data—whether you’ve kept a detailed budget or not—can inform your forecasts.

Income: Your principal income is most likely from sales, and sales are usually variable. Take a look at patterns of previous sales and use those to inform your budget. If you’re just getting started, take a look at other similar companies in your industry to set realistic expectations and aspirational but obtainable goals.

Operating costs: Operating costs include fixed and variable costs. Fixed costs include

• Regular salaries for employees
• Interest payments and principal repayments on business loans

This information should be found on your income statement, balance sheet and other financial statements. Business accounting software for small businesses and startups can help you keep tabs on your financial situation.

However, even fixed costs can increase over time, so allow some room in your budget to account for things like:

• Rent increases
• Cost-of-living salary increases and other raises
• Performance incentives
• Additional staff for planned expansion
• Interest and principal repayments on planned new debt

Variable costs depend on your business’s activity. Some examples include:

• Raw materials
• Wages for workers paid by the hour or by piece of work completed
• Commissions
• Credit card interest payments, bank fees and overdraft charges

Estimate costs for raw materials and packaging based on historical data. Be sure to account for any planned expansion or expected growth in sales. Using production estimates and historical trends, you can also calculate estimates for your hourly staff. Don’t forget to include any cost-of-living raises, promotions and commissions.

Some items have both fixed and variable components. For example, you may pay a fixed monthly charge for your water service, plus an additional cost for the amount you use.

One-time expenses: You might also be planning some one-time expenses, such as new office equipment or production machinery. Include estimates for these costs.

Now you have your income and spending estimates, you can start to understand the profitability of your business. It can help you stay on track and make new goals. For example, if your budget is in the red, you may need find new areas to cut spending and new ways to bring in new clients or sell more goods and services.

Four Key Steps to Creating a Business Budget

Here’s an example of setting up a static budget using a standard budget template, which you can download in the next section.

• List your income sources and the estimated revenue of each in the budget column. You’ll list actuals next to it as the financial period progresses.
• Under operating expenses, list your variable expenses and an estimate for each. Use expected income and historical data to make predictions. For example, if you plan to sell 50 units each month, account for the cost of raw materials, the labor to produce the items, and the cost to sell and distribute them.
• Also under operating expenses, list all your fixed expenses and an expected amount in the budget column. Don’t forget to include estimates for raises, new hires and other things like interest payments on debt.
• List one-time expenditures, such as new office equipment, with cost estimates. These will be listed under non-operating expenses in your budget.

These steps can be done manually, but most companies use software for these functions. It helps produce more accurate and complete data to aid in your forecasting, as well as when you compare actual spending. And robust financial planning software include training and certificate programs to help you and your finance team take full advantage of its features.

What is an example of a budget? For a budget example, we’re going to use a hypothetical small company called Michigan Widgets. Here’s how Michigan Widgets’ static budget looked after completing steps 1-4.

MICHIGAN WIDGETS

As you can see, Michigan Widgets had quite a healthy-looking budget for 2019/20. Now let’s feed in some actual figures.

Unfortunately, Michigan Widgets’ business didn’t fare as well as expected in 2019/20 because revenue was less than the budget forecast. Expenses fell too, but not nearly as much. As a result, net income was about 45% lower than expected. The owner isn’t too happy but thinks this was a short-term downturn and that the business will recover in 2021/20. So, the company went ahead with new equipment purchases and didn’t make any staff reductions.

Plan & Forecast More Accurately

Free Budget Template

You can build a static budget for your business with this free downloadable template (opens in new tab) .

Managing Budgets with Software

You can set up and maintain a simple static business budget like the one above using a standard spreadsheet. However, the process of gathering and entering information can be cumbersome and time-consuming. And if you want more advanced capabilities, such as the ability to create a flexible budget, a spreadsheet may not meet your needs.

For a more powerful and faster approach, use financial planning software for your ledgers, invoices and receipts. Software can make the budgeting and planning process less labor-intensive and keep all financial data in one central location. You and your finance teams can easily access up-to-date information to create budgets and forecasts for what-if scenarios. It can be a collaborative process while also providing simple-to-understand reports and dashboards.

A business budget is an essential management tool. Business managers can use it to monitor day-to-day performance, and it can inform decisions about investment and development for the future. Using a budget to set business targets and monitor performance against those targets can motivate staff and encourage teamwork, while helping keep spending under control. Comprehensive accounting software makes creating, tracking and adjusting your budget easier and more accurate.

Financial Management

Financial Forecast vs. Financial Projection: Key Differences

Financial terms are easily confused and often used interchangeably. But phrases like “financial forecast” and “financial projection” that sound similar are quite different.

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  February 27, 2024

How to create a business budget: 8 simple steps.

No matter the size of your business, a business budget is vital to planning and guiding your business’s growth. By understanding the fixed expenses of a company and accounting for the ebb and flow of work, a proper business budget can help your business maintain itself through the year and create protection around unplanned expenses through well allocated funds. In this guide, we'll walk you through the process of creating a business budget, outlining essential steps to help you manage your finances effectively.

What Is a Business Budget?

A business budget is a financial plan outlining projected revenues and expenses for a business during a specific period of time (most typically a year, though there are often monthly or quarterly reexaminations). Although there are variables throughout the year, a complete and accurate budget will serve as a blueprint for businesses in managing income and expenditures, guiding decision-making processes, and ensuring financial stability. 

What Should a Business Budget Include?

A comprehensive business budget’s purpose is to provide a business a holistic view of their financial health. When looking through bank statements, take note of those expenses that reoccur throughout the year and note those—as well as those unexpected expenses your company should instead anticipate. Key components to include are:

• Revenue Forecast: Anticipated income from sales, services, or other sources after deducting costs, taxes, and other fees.
• Fixed Operating Expenses: Costs associated with running the business, such as rent, utilities, salaries, and supplies.
• Capital Expenditures: Investments in assets like equipment, machinery, or property.
• Debt Service: Payments towards loans, credit lines, or other forms of debt.
• Taxes: Estimated tax liabilities, including income tax, sales tax, and payroll taxes.
• Contingency Funds: Reserves set aside for unexpected expenses or emergencies.
• Profit Targets: Desired levels of profitability, indicating the financial performance you aim to achieve.

Why Is Budgeting Important to a Business?

Budgeting plays a crucial role in the financial management of a business for several reasons:

• Resource Allocation: Helps allocate resources efficiently to prioritize essential activities and investments.
• Financial Control: Provides a framework for monitoring and controlling expenses to prevent overspending.
• Performance Evaluation: Facilitates performance measurement against predetermined targets, enabling timely corrective actions.
• Decision Making: Guides decision-making processes by providing insights into the financial implications of various options.
• Risk Management: Identifies potential risks and allows for proactive mitigation strategies to safeguard financial stability.

How Does Budgeting Help a Business?

Effective budgeting contributes to the success and sustainability of a business in numerous ways:

• Improved Cash Flow Management: Helps maintain adequate cash reserves to meet financial obligations and fund growth initiatives.
• Enhanced Profitability: Enables businesses to identify opportunities for revenue growth and cost optimization, leading to higher profitability.
• Better Resource Utilization: Ensures optimal utilization of resources by aligning expenditures with strategic priorities and operational needs.
• Increased Financial Transparency: Provides stakeholders with a clear understanding of the company's financial health and performance.
• Long-term Planning: Facilitates long-term planning by forecasting future financial requirements and setting achievable goals.

How to Create a Business Budget

Now that we’ve gone over the importance of a business budget, it’s time to understand the steps you need to take in order to create a comprehensive plan.

Gather Financial Information

Start by compiling relevant financial data, including past income statements, balance sheets, and cash flow statements. Analyze historical trends to identify patterns and make informed projections for the upcoming period.

Determine Your Financial Goals

Define clear, measurable financial goals aligned with your business objectives. Whether it's increasing revenue, reducing costs, or improving profitability, setting specific targets will provide a roadmap for your budgeting process.

Identify Revenue Sources

Identify all potential sources of revenue, including sales, services, investments, and other income streams. Estimate the expected revenue for each source based on market trends, historical data, and sales forecasts.

Estimate Expenses

Next, list all anticipated expenses, categorizing them into fixed and variable costs. Fixed expenses, such as rent and salaries, remain constant regardless of business activity, while variable expenses, like supplies and utilities, fluctuate based on demand.

Factor in Contingencies & Emergency Funds

Allocate a portion of your budget for contingencies and emergency funds to cover unforeseen expenses or revenue shortfalls. Building a financial cushion will provide stability and resilience during challenging times.

Balance Your Budget

Balance your budget by ensuring that projected revenues exceed estimated expenses. If there's a deficit, identify areas where you can reduce costs or increase revenue to achieve equilibrium.

Monitor & Track Your Budget

Regularly monitor and track your budget against actual financial performance to identify variances and deviations. Use accounting software or spreadsheets to update your budget and make adjustments as needed to stay on course.

Review & Adjust Budget Regularly

Review your budget periodically, ideally on a quarterly or annual basis, to assess its effectiveness and relevance. Adjust your budget as necessary based on changing market conditions, business priorities, and performance trends.

Contact Mowery & Schoenfeld for Help with Business Budgeting

Creating and managing a business budget requires expertise and strategic planning. At Mowery & Schoenfeld, we specialize in helping businesses develop robust financial strategies to achieve their financial goals. Contact us today to learn how our team of experienced professionals can assist you with business budgeting and financial management. 

Please note that the contents of this site are not being updated since October 1, 2023.

As of October 2, 2023, Acclr Business Information Services (Info entrepreneurs) will be delivered directly by CED’s Business Information Services . To find out more about CCMM’s other Acclr services, please visit this page: Acclr – Business Services | CCMM.

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Budgeting and business planning

Once your business is operational, it's essential to plan and tightly manage its financial performance. Creating a budgeting process is the most effective way to keep your business - and its finances - on track.

This guide outlines the advantages of business planning and budgeting and explains how to go about it. It suggests action points to help you manage your business' financial position more effectively and ensure your plans are practical.

Planning for business success

The benefits, what to include in your annual plan, a typical business planning cycle, budgets and business planning, benefits of a business budget, creating a budget, key steps in drawing up a budget, what your budget should cover, what your budget will need to include, use your budget to measure performance, review your budget regularly.

When you're running a business, it's easy to get bogged down in day-to-day problems and forget the bigger picture. However, successful businesses invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance.

Structured planning can make all the difference to the growth of your business. It will enable you to concentrate resources on improving profits, reducing costs and increasing returns on investment.

In fact, even without a formal process, many businesses carry out the majority of the activities associated with business planning, such as thinking about growth areas, competitors, cashflow and profit.

Converting this into a cohesive process to manage your business' development doesn't have to be difficult or time-consuming. The most important thing is that plans are made, they are dynamic and are communicated to everyone involved. See the page in this guide on what to include in your annual plan.

The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Business planning can give you:

• a greater ability to make continuous improvements and anticipate problems
• sound financial information on which to base decisions
• improved clarity and focus
• a greater confidence in your decision-making

The main aim of your annual business plan is to set out the strategy and action plan for your business. This should include a clear financial picture of where you stand - and expect to stand - over the coming year. Your annual business plan should include:

• an outline of changes that you want to make to your business
• potential changes to your market, customers and competition
• your objectives and goals for the year
• your key performance indicators
• any issues or problems
• any operational changes
• information about your management and people
• your financial performance and forecasts
• details of investment in the business

Business planning is most effective when it's an ongoing process. This allows you to act quickly where necessary, rather than simply reacting to events after they've happened.

• Review your current performance against last year/current year targets.
• Work out your opportunities and threats.
• Analyse your successes and failures during the previous year.
• Look at your key objectives for the coming year and change or re-establish your longer-term planning.
• Identify and refine the resource implications of your review and build a budget.
• Define the new financial year's profit-and-loss and balance-sheet targets.
• Conclude the plan.
• Review it regularly - for example, on a monthly basis - by monitoring performance, reviewing progress and achieving objectives.
• Go back to 1.

New small business owners may run their businesses in a relaxed way and may not see the need to budget. However, if you are planning for your business' future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.

If your business is growing, you may not always be able to be hands-on with every part of it. You may have to split your budget up between different areas such as sales, production, marketing etc. You'll find that money starts to move in many different directions through your organisation - budgets are a vital tool in ensuring that you stay in control of expenditure.

A budget is a plan to:

• control your finances
• ensure you can continue to fund your current commitments
• enable you to make confident financial decisions and meet your objectives
• ensure you have enough money for your future projects

It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by your plan that your business wants to achieve.

There are a number of benefits of drawing up a business budget, including being better able to:

• manage your money effectively
• allocate appropriate resources to projects
• monitor performance
• meet your objectives
• improve decision-making
• identify problems before they occur - such as the need to raise finance or cash flow difficulties
• plan for the future
• increase staff motivation

Creating, monitoring and managing a budget is key to business success. It should help you allocate resources where they are needed, so that your business remains profitable and successful. It need not be complicated. You simply need to work out what you are likely to earn and spend in the budget period.

Begin by asking these questions:

• What are the projected sales for the budget period? Be realistic - if you overestimate, it will cause you problems in the future.
• What are the direct costs of sales – i.e. costs of materials, components or subcontractors to make the product or supply the service?
• What are the fixed costs or overheads?

You should break down the fixed costs and overheads by type, e.g.:

• cost of premises, including rent, municipal taxes and service charges
• staff costs –e.g. wages, benefits, Québec Parental Insurance Plan (QPIP) premiums, contributions to the Québec Pension Plan (QPP) and to the financing of the Commission des normes du travail (CNT)
• utilities – e.g. heating, lighting, telephone
• printing, postage and stationery
• vehicle expenses
• equipment costs
• advertising and promotion
• travel and subsistence expenses
• legal and professional costs, including insurance

Your business may have different types of expenses, and you may need to divide up the budget by department. Don't forget to add in how much you need to pay yourself, and include an allowance for tax.

Your business plan should help in establishing projected sales, cost of sales, fixed costs and overheads, so it would be worthwhile preparing this first. See the page in this guide on planning for business success.

Once you've got figures for income and expenditure, you can work out how much money you're making. You can look at costs and work out ways to reduce them. You can see if you are likely to have cash flow problems, giving yourself time to do something about them.

When you've made a budget, you should stick to it as far as possible, but review and revise it as needed. Successful businesses often have a rolling budget, so that they are continually budgeting, e.g. for a year in advance.

There are a number of key steps you should follow to make sure your budgets and plans are as realistic and useful as possible.

Make time for budgeting

If you invest some time in creating a comprehensive and realistic budget, it will be easier to manage and ultimately more effective.

Use last year's figures - but only as a guide

Collect historical information on sales and costs if they are available - these could give you a good indication of likely sales and costs. But it's also essential to consider what your sales plans are, how your sales resources will be used and any changes in the competitive environment.

Create realistic budgets

Use historical information, your business plan and any changes in operations or priorities to budget for overheads and other fixed costs.

It's useful to work out the relationship between variable costs and sales and then use your sales forecast to project variable costs. For example, if your unit costs reduce by 10 per cent for each additional 20 per cent of sales, how much will your unit costs decrease if you have a 33 per cent rise in sales?

Make sure your budgets contain enough information for you to easily monitor the key drivers of your business such as sales, costs and working capital. Accounting software can help you manage your accounts.

Involve the right people

It's best to ask staff with financial responsibilities to provide you with estimates of figures for your budget - for example, sales targets, production costs or specific project control. If you balance their estimates against your own, you will achieve a more realistic budget. This involvement will also give them greater commitment to meeting the budget.

Decide how many budgets you really need. Many small businesses have one overall operating budget which sets out how much money is needed to run the business over the coming period - usually a year. As your business grows, your total operating budget is likely to be made up of several individual budgets such as your marketing or sales budgets.

Projected cash flow  -your cash budget projects your future cash position on a month-by-month basis. Budgeting in this way is vital for small businesses as it can pinpoint any difficulties you might be having. It should be reviewed at least monthly.

Costs  - typically, your business will have three kinds of costs:

• fixed costs - items such as rent, salaries and financing costs
• variable costs - including raw materials and overtime
• one-off capital costs - purchases of computer equipment or premises, for example

To forecast your costs, it can help to look at last year's records and contact your suppliers for quotes.

Revenues  - sales or revenue forecasts are typically based on a combination of your sales history and how effective you expect your future efforts to be.

Using your sales and expenditure forecasts, you can prepare projected profits for the next 12 months. This will enable you to analyse your margins and other key ratios such as your return on investment.

If you base your budget on your business plan, you will be creating a financial action plan. This can serve several useful functions, particularly if you review your budgets regularly as part of your annual planning cycle.

Your budget can serve as:

• an indicator of the costs and revenues linked to each of your activities
• a way of providing information and supporting management decisions throughout the year
• a means of monitoring and controlling your business, particularly if you analyse the differences between your actual and budgeted income

Benchmarking performance

Comparing your budget year on year can be an excellent way of benchmarking your business' performance - you can compare your projected figures, for example, with previous years to measure your performance.

You can also compare your figures for projected margins and growth with those of other companies in the same sector, or across different parts of your business.

Key performance indicators

To boost your business' performance you need to understand and monitor the key "drivers" of your business - a driver is something that has a major impact on your business. There are many factors affecting every business' performance, so it is vital to focus on a handful of these and monitor them carefully.

The three key drivers for most businesses are:

• working capital

Any trends towards cash flow problems or falling profitability will show up in these figures when measured against your budgets and forecasts. They can help you spot problems early on if they are calculated on a consistent basis.

To use your budgets effectively, you will need to review and revise them frequently. This is particularly true if your business is growing and you are planning to move into new areas.

Using up to date budgets enables you to be flexible and also lets you manage your cash flow and identify what needs to be achieved in the next budgeting period.

Two main areas to consider

Your actual income  - each month compare your actual income with your sales budget, by:

• analysing the reasons for any shortfall - for example lower sales volumes, flat markets, underperforming products
• considering the reasons for a particularly high turnover - for example whether your targets were too low
• comparing the timing of your income with your projections and checking that they fit

Analysing these variations will help you to set future budgets more accurately and also allow you to take action where needed.

Your actual expenditure  - regularly review your actual expenditure against your budget. This will help you to predict future costs with better reliability. You should:

• look at how your fixed costs differed from your budget
• check that your variable costs were in line with your budget - normally variable costs adjust in line with your sales volume
• analyse any reasons for changes in the relationship between costs and turnover
• analyse any differences in the timing of your expenditure, for example by checking suppliers' payment terms

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How to Create a Business Budget for Your Small Business

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A business budget estimates future revenue and expenses in detail, so that you can see whether you’re on track to meet financial expectations for the month, quarter or year. Think of your budget as a point of comparison — you run your actual numbers against it to determine if you’re over or under budget.

From there, you can make informed business decisions and pivot accordingly. For example, maybe you find that your expenses are over budget for the quarter, so you may hold off on a large equipment purchase.

Here’s a step-by-step guide for creating a business budget, along with why budgets are crucial to running a successful business.

» MORE: What is accounting? Definition and basics, explained

QuickBooks Online

How does a business budget work?

Budgeting uses past months’ numbers to help you make financially conservative projections for the future and wiser business decisions for the present. If you’ve had a few bad months and predict another slow one, you can prepare to minimize expenses where possible. If business has been booming and you’re bringing in new customers, maybe you invest in buying more inventory to satisfy increased demand.

Creating a business budget from scratch can feel tedious, but you might already have access to tools that can help simplify the process. Your small-business accounting software is a good place to start, since it houses your business’s financial data and may offer basic budgeting reports.

To create a budget in QuickBooks Online , for example, you break down your estimated income and expenses across each area of your business. Then, the software calculates figures like gross profit, net operating income and net income for you.

You can then compare actual versus projected figures side by side by running a Budget vs. Actuals report. Businesses that need more in-depth features, like cash flow forecasting or the ability to use different projection methods, might subscribe to business budgeting software in addition to accounting software.

If your small business doesn’t have access to these features or has simple financials, you can download free small-business budget templates to manually create and track your budget. Regardless of which option you choose, your business will likely benefit from hiring an accountant to help manage your budget, course-correct when the business gets off track, and make sure taxes are being paid correctly.

Why is a business budget important?

A business budget encourages you to look beyond next week and next month to next year, or even the next five years.

Creating a budget can help your business do the following:

Maximize efficiency. 

Establish a financial plan that helps your business reach its goals. 

Point out leftover funds that you can reinvest.

Predict slow months and keep you out of debt.

Estimate what it will take to become profitable.

Provide a window into the future so you can prepare accordingly.

Creating a business budget will make operating your business easier and more efficient. A business budget can also help ensure you’re spending money in the right places and at the right time to stay out of debt.

How to create a business budget in 6 steps

The longer you’ve been in business, the more data you’ll have to inform your forward-looking budget. If you run a startup, however, you’ll want to do extensive research into typical costs for businesses in your industry, so that you have working estimates for revenue and expenses.

From there, here’s how to put together your business budget:

1. Examine your revenue

One of the first steps in any budgeting exercise is to look at your existing business and find all of your revenue sources. Add all those income sources together to determine how much money comes into your business monthly. It’s important to do this for multiple months and preferably for at least the previous 12 months, provided you have that much data available.

Notice how your business’s monthly income changes over time and try to look for seasonal patterns. Your business might experience a slump after the holidays, for example, or during the summer months. Understanding these seasonal changes will help you prepare for the leaner months and give you time to build a financial cushion.

Then, you can use those historic numbers and trends to make revenue projections for future months. Make sure to calculate for revenue, not profit. Your revenue is the money generated by sales before expenses are deducted. Profit is what remains after expenses are deducted.

2. Subtract fixed costs

The second step for creating a business budget involves adding up all of your historic fixed costs and using them to reliably predict future ones. Fixed costs are those that stay the same no matter how much income your business is generating. They might occur daily, weekly, monthly or yearly, so make sure to get as much data as you can.

Examples of fixed costs within your business might include:

Debt repayment.

Employee salaries.

Depreciation of assets.

Property taxes.

Insurance .

Once you’ve identified your business’s fixed costs, you’ll subtract those from your income and move to the next step.

3. Subtract variable expenses

As you compile your fixed costs, you might notice other expenses that aren’t as consistent. Unlike fixed costs, variable expenses change alongside your business’s output or production. Look at how they’ve fluctuated over time in your business, and use that information to estimate future variable costs. These expenses get subtracted from your income, too.

Some examples of variable expenses are:

Hourly employee wages.

Owner’s salary (if it fluctuates with profit). 

Raw materials.

Utility costs that change depending on business activity.

During lean months, you’ll probably want to lower your business’s variable expenses. During profitable months when there’s extra income, however, you may increase your spending on variable expenses for the long-term benefit of your business.

4. Set aside a contingency fund for unexpected costs

When you’re creating a business budget, make sure you put aside extra cash and plan for contingencies.

Although you might be tempted to spend surplus income on variable expenses, it’s smart to establish an emergency fund instead, if possible. That way, you’ll be ready when equipment breaks down and needs replacing, or if you have to quickly replace inventory that's damaged unexpectedly.

5. Determine your profit

Add up all of your projected revenue and expenses for each month. Then, subtract expenses from revenue. You may also see the resulting number referred to as net income . If you end up with a positive number, you can expect to make a profit. If not, that’s a loss — and that can be OK, too. Small businesses aren’t necessarily profitable every month, let alone every year. This is especially true when your business is just starting out. Compare your projected profits to past profits to confirm whether they’re realistic.

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6. Finalize your business budget

Are the resulting profits enough to work with, or is your business overspending? This is your opportunity to set spending and earning goals for each month, quarter and year. These goals should be realistic and achievable. If they don’t line up with your projections, make sure to establish a strategy for making up the difference.

As time goes on, regularly compare your actual numbers to your budget to determine whether your business is meeting those goals, and course correct if necessary.

» MORE: Ways your small business can spend smarter

A business budget projects future revenue and expenses so you can create a smart, realistic spending plan. As the year progresses, comparing your actual numbers against your budget can help you hold your business accountable and make sure it reaches its financial goals.

A business budget includes projected revenue, fixed costs, variable costs and the resulting profits. You can also factor in contingency funds for unforeseen circumstances like equipment failure.

On a similar note...

Business Budget: What is it & Why is it important?

According to a survey conducted by Clutch , 61 percent of small businesses have not created a formal budget. Without a budget, you may not understand how your business is performing.

Creating a budget helps you understand how much money you have, how much you have spent, and how much money you will need in the future. A budget can drive important business decisions like cutting down on unwanted expenses, increasing staff, or purchasing new equipment. If you end up with insufficient money, the budget can guide you in altering your business plan or prioritizing your spending on activities.

With the right budgeting plan, you can keep your business out of debt or find ways to reduce the debt it is currently facing.  A comprehensive budget can even be used for obtaining business loans from banks or other financial institutions.

In this guide, you will learn about the importance of a business budget, the components of a good budget, and the different types of budgets.

So, what exactly is a business budget?

A business budget is a spending plan for your business based on your income and expenses. It identifies your available capital, estimates your spending, and helps you predict revenue.

A budget can help you plan your business activities and can act as a yardstick for setting up financial goals. It can help you tackle both short-term obstacles and long-term planning.

Different types of budgets

Your final budget is usually a combination of inputs from several other budgets that are prepared at a departmental level. Let’s look at the different types of budget and how they contribute to drafting a business plan.

1. Master budget

A master budget is an aggregation of lower-level budgets created by the different functional areas in an organization. It uses inputs from financial statements, the cash forecast, and the financial plan. Management teams use master budgets to plan the activities they need to achieve their business goals. In larger organizations, the senior management is responsible for creating several iterations of the master budget before it is finalized. Once it has been reviewed for the final time, funds can be allocated for specific business activities.

Smaller businesses often use spreadsheets to create their master budgets, but replacing the spreadsheets with efficient budgeting software typically reduces errors.

2. Operating budget

An operating budget shows a business’s projected revenue and the expenses associated with it for a period of time. It’s very similar to a profit and loss report. It includes fixed cost, variable cost, capital costs, and non-operating expenses. Although this budget is a high-level summary report, each line item is backed up with relevant details. This information is useful for checking whether the business is spending according to its plans.

In most organizations, the management prepares this budget at the beginning of each year. The document is updated throughout the year, either monthly or quarterly, and can be used as a forecast for consecutive years.

3. Cash budget

A cash flow budget gives you an estimate of the money that comes in or goes out of a business for a specific period in time. Organizations create cash budgets using inferences from sales forecasts and production, and by estimating the payables and receivables.

The information in this budget can help you evaluate whether you have enough liquid cash for operating, whether your money is being used productively, and whether there is and whether you are on track to earn a profit .

4. Financial budget

Businesses draft this budget to understand how much capital they’ll need and at what times for fulfilling short-term and long-term needs. It factors in assets, liabilities, and stakeholder’s equity—the important components of a balance sheet , which give you an overall idea of your business health.

5. Labor budget

For any business that is planning on hiring employees to achieve its goals, a labor budget will be important. It helps you determine the workforce you will require to achieve your goals so you can plan the payroll for all of those employees. In addition to planning regular staffing, it also helps you allocate expenses for seasonal workers.

6. Static budget

As the name suggests, this budget is an estimate of revenue and expenses that will remain fixed throughout the year. The line items in this budget can be used as goals to meet regardless of any increases or decreases in sales. Static budgets are usually prepared by nonprofits, educational institutions, or government bodies that have been allocated a fixed amount to use for their activities in each area.

Components of a budget

If you are starting a new business, the first budget you create might be a challenge, but it is a good learning experience and a good way to understand what works best for your business. The best place to start is getting to know your budget components. Initially you may need to make several assumptions to get your budget started.

1. Estimated revenue

This is the money you expect your business to make from the sale of goods and services.  There are two main components of estimated revenue: sales forecast and estimated cost of goods sold or services rendered. If your business is more than a year old, then your experience will guide you in estimating these components. If your business is new, you can check the revenue of similar local businesses and use those figures to conservatively create some estimated revenue numbers. But whether your business is new or old, it is important to stay realistic to avoid over-estimating.

2. Fixed cost

When your business pays the same amount regularly for a particular expense, that is classified as a fixed cost . Some examples of fixed costs include building rent, mortgage/utility payments, employee salaries, internet service, accounting services, and insurance premiums. Factoring these expenses into the budget is important so that you can set aside the exact amount of money required to cover these expenses. They can also be a good reference point to check for problems if your business finances aren’t going as planned.

3. Variable costs

This category includes the cost of goods or services that can fluctuate based on your business success. For example, let us assume you have a product in the market that is gaining popularity. The next thing you would like to do is manufacture more of that product. The costs of the raw materials required for production, the distribution channels used for supplying the product, and the production labor will all change when you increase production, so they will all be considered variable expenses.

4. One-time expenses

These are one-off, unexpected costs that your business might incur in any given year. Some examples of these costs include replacing broken furniture or purchasing a laptop.

Since it is difficult to predict these expenses, there is no certain way to estimate for them. But it’s wise to set aside some cash for this category to stay prepared.

5. Cash flow

This is the money that travels in and out of the business. You can get an idea of it from your previous financial records and use that information to forecast your earnings for the year you’re budgeting for. You’ll want to pay attention not only to how much money is coming in, but also when. If your business has a peak season and a dry season, knowing when your cash flow is highest will help you plan when to make large purchases or investments.

The final budget component is profit, which is a number you arrive at by subtracting your estimated cost from revenue. An increase in profit means your business is growing, which is a good sign. Once you have projected how much profit you are likely to make in a year, you’ll be able to decide how much to invest in each functional area of your organization. For example, will you use your profit to invest in advertising or marketing to drive more sales?

A budget is a road map for your business. It helps you predict cash flow, identify functional areas that need improvement, and run your operations smoothly. Successful businesses invest a lot of time and effort into creating realistic budgets, because they’re an efficient way of tracking the extent to which the business has achieved its goals. Creating a budget can get a bit overwhelming for new businesses as there are no previous figures to guide their budget estimates, but with some estimates based on the performance of competitors and an understanding of the components of a budget, you can complete your first budget and have a good road map for future budgets.

Related Posts

• Cash Flow Statement - Definition and Importance
• How to Create a Business Budget for Your Small Business
• Income statement - Definition, Importance and Example

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may I have more materials for budgeting?

Hey Patricia,

While we appreciate suggestions from our readers, we just wanted to let you know there’s more coming up on budgeting. However, besides this article, there’s another one on – How to create a business budget for your small business. Hope it’s insightful.

Has helped me learn a few things about types of budgets

I love this article. It is very helpful. I am interested in knowing which budgeting softwares are efficient when you say,” Smaller businesses often use spreadsheets to create their master budgets, but replacing the spreadsheets with efficient budgeting software typically reduces errors.” I am looking for one software for my company!

Thank you. Respectfully,

Hi Nilamba!

Budgeting is one of the important features in Zoho Books.

A few key highlights of Zoho Books include: 1. Management of vendors and customers. 2. Creating Estimates, Sales orders and Invoices. 3. Managing your Expenses, Bills, Purchase Orders. 4. Collaborative Client Portal through which your clients can easily view all their transactions and also make payments. 5. Integrations with other Zoho apps. 6. Integrations with Online payment gateways 7. Automated Bank feeds. 8. Exhaustive Reports and much more… It is available as a mobile app on Android, iOS and Windows as well. Please do write to us at [email protected] and we will be happy to explain how Zoho Books will be a great fit for your business.

Thanks you for the level of understanding on this topic but I need new materials as technology advance.

Thank you for the information, it’s great help.

Excellent and easily elaborated..

You might also like

Switch to smart accounting. try zoho books today.

How to Write a Business Plan: Step-by-Step Guide + Examples

Noah Parsons

24 min. read

Updated May 7, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

Free business plan templates and examples

Kickstart your business plan writing with one of our free business plan templates or recommended tools.

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How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan
• Templates and examples

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How to Master the Fine Art of Business Planning and Budgeting

Updated on: 5 January 2023

Starting a business is a challenging thing: you have to work hard and do your best to ensure its success. However, the work doesn’t end even when your business actually becomes operational. You still have to do so much more to ensure that it will keep on track.

Of course, it could be hard, especially for the beginners. It seems that you have to keep an eye on so many things and focus on so many urgent tasks every day that there isn’t any time left for business planning and budgeting. However, it is very important to find that time, because business planning and budgeting are actually one of the most important things for business success.

Why so? Because a plan allows you to get a better understanding of how you see your business, how you want to develop it, and so on. When you create a plan, you set targets that you want to achieve as well as define the ways of evaluating the success of your business.

Basically, planning gives you all the necessary tools that you can use to improve your business in the nearest future. However, this happens only when planning is done correctly.

What to Include in Your Annual Plan?

If you want to create a perfect business plan, you have to know what has to be included in it and how big it will be. Of course, there are no strict limitations to a size of a business plan as each business is different. However, if you are doing it for the first time, I recommend starting with a yearly plan: it is not too big and not too short.

A good annual plan has to include the following things:

• an executive summary
• a list of products and services you offer (or plan to offer this year)
• a detailed description of your target market
• a financial plan
• a marketing plan as well as a sales plan
• milestones and metrics
• a description of your management team

In order to write it in the best way possible, you need to spend some time thinking about the current status of your company as well as how it should look like by the end of the year. Describe your target market, think about the goals that have to be achieved this year, about the products and services that have to be launched.

Visualize the information to make it easier for you to see the whole picture (this is especially important for those, who don’t have much experience in planning). You can use charts, and different diagram types such as mind maps to visualize and organize your ideas and plans.

Try choosing a few main goals for your company and add them to the annual plan being as specific as possible: for example, if you want to increase your earnings, you should specify by how much (10%, 15%, etc.). It’s also good to think about the obstacles you might face and come up with some ways to minimize the potential risks that could occur.

Remember that while a business plan has to be specific and detailed when you write it, it shouldn’t remain static by the end of the year. No business is predictable enough for this to happen: you should understand it and prepare to act quickly, adding changes to a business plan if something unexpected happens.

Business Planning Cycle

As I said, typical business planning isn’t a static thing – actually, it’s a cycle that usually looks like this:

• You take some time to evaluate the effectiveness of your business. In order to do so, you should compare its current performance with the last year’s one – or with targets set earlier this year.
• Then you have to think about opportunities that might appear as well as the threats you might face.
• Remember about both successes and failures your business experienced throughout last year. Analyze them and think what can be done to repeat/avoid them.
• Think of the main business goals you would like to achieve and be sure to add them to the new annual plan (or edit the old one according to them).
• Create a budget.
• Come up with budget targets.
• Complete the plan.
• Be sure to review it regularly (every month, every three months, etc.), making changes if necessary.

Repeat the whole cycle.

Business Planning and Budgeting

When a business is still small and growing, it might seem unnecessary to plan its budget. However, it’s crucial if you want to avoid financial risks and be able to invest in opportunities when they appear.

Moreover, with the rapid growth of your business, you might find yourself in a situation where you aren’t able to control all the money anymore. Expansion of the business usually includes the creation of different departments responsible for different things – and each of these departments needs to have its own budget.

As you see, the bigger your business becomes, the more complicated it gets. While it’s okay to not control every cent by yourself, it is still up to you to make sure that your business keeps growing instead of becoming unprofitable. That’s why it’s so important to create a budget plan that allows you to understand the exact income your business brings by the end of the month and the amount of it, you are able to save or spend on different things.

It is important to remember that a business plan is not a forecast in any way. It doesn’t predict how much money you’ll make by the end of the year. Instead, it’s a tool for ensuring that your business will remain profitable even after covering all the necessary expenses.

Moreover, a business plan also ensures that you’ll have the opportunity to invest money into future projects, fund everything that has to be funded this year, and meet all of the business objectives.

Benefits of a Business Budget

The whole budget planning has a lot of benefits:

It allows you to evaluate the success of your business: when you know exactly how much profit your business gave you at the beginning of the year, you are able to compare it with the profit by the end of the year, understanding whether your financial goals have been met or not.

It allows managing money effectively: for example, if you save money for predicted one-time spends, you won’t be caught by surprise by them.

It helps identify the problems before they actually happen: for example, if you evaluate your budget and see that the income left after covering all the expenses is quite small, you’ll understand that you need to make more profit this year.

It helps make smarter decisions, by only investing money that you can afford to invest.

It allows you to manage your business more effectively, allocating more resources to the projects that need them the most.

It helps in increasing staff motivation.

Basically, when you have a budget plan ready, you have your back covered.

How to Create a Budget?

There are so many articles written on how to create a perfect business budget, but most of them narrow down to these 5 simple things:

• Evaluate your sources of income. You have to find out how much money your business brings on a daily basis in order to understand how much money you can afford to invest and spend.
• Make a list of your fixed expenses. These ones repeat every month and their amount doesn’t change. Some people forget to exclude the sum needed to cover these expenses from the monthly income, but it’s important to do so in order to get a clear understanding of your budget.
• Don’t forget about variable expenses. These ones don’t have a fixed price but still have to be paid every month. Come up with an approximate sum you’ll have to pay and include it in your budget.
• Predict your one-time expenses. Every business needs them from time to time, but if you plan your budget forgetting about these expenses, spending money on them could affect it greatly and not in a positive way.
• When you list all the income and expense sources, it’s time to pull them all together. Evaluate how much money you’ll have each month after you cover all these expenses. Then think of what part of that sum you could afford to invest into something.

While a whole process of budget creation might seem too complicated, you still should find time to do it. It’s totally worth the effort – moreover, such a plan could help you not only throughout the next month but also throughout the next year (if your expense and income sources won’t change much).

Of course, it’s still important to review it from time to time, making changes when necessary. However, the review process won’t be as complicated as the creation of a budget plan from scratch.

Key Steps in Drawing up a Budget

If you’ve never created a budget plan before, you could make some budgeting mistakes . However, when it comes to financial planning, the smallest mistake could have a negative impact. The following tips can help you easily avoid most mistakes, making your budget plan more realistic.

• Try to take it slow

The more time you spend on budgeting, the better it is for you. It’s hard to create a flawless budget plan quickly: there’s a big chance you might miss something. That’s why it’s vital to make sure that you’ve listed all the sources of your income and expenses, and are prepared well.

• You can use last year’s data

Last year’s data could help you see the whole picture better: you can compare it with this year’s data, finding out whether your income has increased or decreased. However, you should use it only for comparing and as a guide. You have new goals and resources this year, and the environment you’re working in has changed too, so your current planning and strategies should differ from the ones you used last year.

• Make sure that a budget is realistic

The most important thing about a budget plan is that it has to cover not only predictable expenses but also less predictable ones. Of course, making predictions is hard but using previous data along with some other business plans as examples could make the whole process easier.

A budget also has to be detailed: the information it contains has to allow you to monitor all the key details of your business, be it sales, costs, and so on. You could also use some accounting software for more effective management.

• It’s okay to involve people

If your business is big enough, you probably have some employees responsible for a part of the financial operations. It’s good to involve them in a budget creation process too, using their knowledge and experience to predict some expenses, for example. If the people you involve are experienced enough, the combination of their professionalism and your knowledge will make a budget more realistic and effective.

• Visualizing helps

Various charts and diagrams are so popular in business for a reason: they allow tracking your incomes and expenses easily. For example, you can create one chart based on your plan and another chart based on an actual budget and compare them during planned revisions to see whether your budget plan works just as expected or not.

As I mentioned above, it’s easier to control finances when you are running a small business. Such business needs only one budget that is created for a certain period – in most cases, for a year. Larger businesses, however, require something else. They have various departments, so it is better to create several budgets at once, tailoring each of them to a certain department’s needs.

Don’t Forget to Review!

I’ve already mentioned that a review is an important process of every business planning and budgeting. No matter how good your plan is, it is impossible to predict everything with 100 percent accuracy. Your business will grow and the environment around it will change, so the quicker you’ll react to such changes, the better it is for you.

That’s why you should schedule budget reviews from time to time. I recommend starting with reviewing it every month and then switching to a more comfortable schedule. Every month review can help you notice the flaws of your plan (which is especially important if you don’t have much experience in this kind of thing) as well as understand how stable your business is.

If you see that you don’t have to make changes often, you could start reviewing your plan every three or six months (however, I recommend doing it more often).

You can use various common diagrams to help you . The best thing about diagrams is that they help visualize data well, which is very important when you need to see the whole picture more clearly – and this happens often during budget planning. For example, a diagram or a chart of your company’s income can show you how much your finances have grown during a certain period. Moreover, if you notice certain downfalls in a chart (that aren’t predicted), you’ll be able to react to it quickly, fixing things that went wrong.

What do you need to consider during the whole review process? First, your actual income. Probably it will be different each month: every business has its own peak sales periods and drop sales ones, and you have to find them and remember them for more effective planning next year. It is important to check whether the income matches the one you predicted or not: if not, you have to find out why it happened.

Second, you have to evaluate your actual expenses. See if they differ from your budget, how much do they affect it, why they exceed your expectations (if they do), and so on.

Probably the best thing about reviewing is that it allows you to react to all the unexpected situations quickly, saving your business from the potential troubles and downfalls. So be sure not to skip it.

As you see, writing a business plan is a complex process. You have to be very attentive, to plan everything, starting with your goals and ending with your expenses, to consider so many things and to involve other people in planning if possible. Moreover, you also have to learn all the time, reviewing your plans, making changes, finding the ways to react to unexpected situations.

But while this might look like a tough thing to do, it is very convenient for everyone who wants to manage their business successfully. The planning takes a lot off your shoulders and makes the whole business running process easier. You are able to evaluate the effectiveness of your business by looking at the monthly income increase, at the goals you wanted to achieve, and so on. You are also able to predict the potential downfalls of your business and to use the tools you have to minimize all the risks.

You are able to evaluate the effectiveness of your business by looking at the monthly income increase, at the goals you wanted to achieve, and so on. You are also able to predict the potential downfalls of your business and to use the tools you have to minimize all the risks.

I hope that this guide will help you create strong and realistic budget and business plans, and successfully implement them in running your business. If you have some tips on business and budget planning that you want to share, please do so in the comment section below!

Author’s Bio:

Kevin Nelson started his career as a research analyst and has changed his sphere of activity to writing services and content marketing. Apart from writing, he spends a lot of time reading psychology and management literature searching for the keystones of motivation ideas. Feel free to connect with him on Facebook , Twitter , Google+ , Linkedin .

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

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What is budgeting in business?

A business budget is a financial plan , typically for the year ahead, that is often put together  based on historical income and expenditure. It will pinpoint all available resource to calculate spending and turnover accordingly.

The budget is used as part of the planning process in terms of setting goals, implementing activities, and the expenditure that is likely to be incurred. Formulating a budget is therefore essential to owner managers to help you understand how well your business is performing.

The budget ensures you know:

• The revenue you need to make
• What you have allocated for expenditure to generate revenue
• How much you have actually spent
• How much money you have left over, if any
• The amount of money you will need in the future based on sales, profit, and your cash position

A budget, and adherence to it, ensures you can make informed business decisions regarding new equipment, office premises, expenses, staff, and much more. Furthermore it assists in helping you manage debt, reduce loans, or obtain finance .

In this sense a business budget is used to help you assess the progress you make in the short and long term, towards your vision .

How to manage a budget

The likelihood is your business will need a budget for each department, division, and/or office, depending on size. This then requires decision makers (if you have more than 1), to buy into the process, the targets set, and to consult the budget regularly in their spending decisions .

Budgets should not therefore be held solely in the finance team, of by a financial controller. It has to be fully integrated throughout your organisation. This means many people are responsible or involved in managing a budget , feeding into it, updating it, and staying informed as to progress in the business.

The budget must therefore be reviewed regularly to ensure it feeds into the goals and requirements of your business. Some of the different teams involved in a budget include:

• The finance team
• Heads of departments
• Heads of offices
• Office administrator

The budgeting process

Creating a budget works as follows:

1. Preparation

Your budget should guide what turnover will be, and the amount of spending needed to achieve it. This means it has to detail what that spending goes on. You can have short-term budgets over a year for example, mid-terms budgets over 2-3 years, and longer term budgets of 5+ years.

Your budget can guide day-to-day operations as well as significant, big purchase items, such as new IT infrastructure. The key is to analyse historical spending, resource requirements, turnover, and cash flow , where that is available. From that data and intelligence, you can then begin to allocate target revenue and expenditure accordingly.

To gauge what the different areas of the business want to spend money on, you need to set deadline dates usually well prior to the end of the current calendar year. You may for example commence the budget process in November with a view to discussing the findings by the mid-point of that month.

The deadlines centre around producing plans for:

Following adjustments, you then produce a draft budget for review and comments by senior leadership. This would allow for further changes with a view to finalising the budget by the end of November. The amount of time to allocate to this process depends on the size of your business and the number of people it employs.

Remember, your budget needs to be comprehensive but flexible, for circumstances can change quickly, and often best laid plans may need to pivot to accommodate them.

2. Sales and revenue projections

As your business makes sales, so this data can be collected to make revenue projections from one year to the next. This can potentially even be broken down to week by week, monthly, and quarterly.

Projections then work as targets for the relevant salespeople and teams to work towards. Data regarding sales should therefore be amassed in real time so that you can gauge how well your business is performing compared to the designated goals.

It is essential to use the data from prior years of trading to come up with realistic forecasts and targets. The closer your budget compares to actual results, the greater credibility with which it will be held by people working in your business.

There are 2 methods you can employ for revenue forecasting. The first is bottom-up forecasting , a method whereby you estimate future performance based on low-level customer and/or product information. You then use this to build up to a revenue figure. A service business might for example, look at the number of employees and the amount of work and fees they're likely to generate at full capacity, per person.

Questioning your potential customers about what they would spend on your offering, and even looking at competitors' sales (where available) will provide useful intelligence for making realistic projections in the early days. 

3. Identifying fixed, variable, and sunk costs

First you need to identify and categorise expenses into fixed and variable costs. Fixed costs are those that occur regularly at a constant price. They tend to include things such as:

• Leasing equipment
• Rent on premises
• Property related taxes

Once you have identified them, add your fixed costs up to obtain a total. Of note, businesses that produce items and things, such as in engineering, tend to have higher fixed costs due to the need for factory space and the leasing of equipment.

Your variable costs are those that will vary depending on the volume of goods, or services, your business produces. Typically, these costs will increase as the amount of activity in your organisation grows. Examples include:

• Utilities - electricity, gas, water, internet, and phones
• Commissions - payments based on sales
• Raw materials - goods/inventory to manufacture products such as steel, fuel, oil, and plastic

You also need to consider sunk costs . These will be one-time items of expenditure that are very infrequent. Sunk costs tend to be particularly prevalent during the start-up and early phases in the business lifecycle. Set up costs such as purchasing IT equipment and servers being examples. 

Of note, not all one-time items of expenditure can be predicted. It is therefore wise to set money aside for such matters, akin to saving for a rainy day. How much more resource is needed in terms of people to hit your sales targets? You should break this down specifically to each area, or division of your business.

4. Headcount planning

Headcount planning works by looking at how many employees you have today. Then you have to consider how many more employees you'll need to take on to help you achieve your revenue goals. How many more people do you need to employ to hit your sales targets?

This work needs to be broken to the specific areas and divisions of your business. It means working with the people in charge of these areas and challenging their assumptions to ascertain if additional recruitment is really needed. After all recruitment is a potentially significant investment for your business, and you'll want all investment decisions to be made in a well informed manner. 

5. Assessing profit margins

Tracking income versus your projections, and expenditure compared to the budget means you can then assess your profit margins. These asses how much profit your business makes from its sales, and how much profit can be obtained from every pound of revenue generated. 

Gross profit margin can inform you as to what your business is making after paying for the direct cost of doing business. It is calculated using this formula:

Direct expenses are the costs of the materials and expenses associated specifically with the creation of your product or service. They don't include overhead costs such as insurance, rent, and utilities.

Net Profit Margin calculates the percentage of profit your business produces from total revenue and all costs of doing business. It is calculated using this formula:

Interest refers to debt payments and the interest paid on them. Tax refers to all taxation deducted from income.

These percentages will inform you if your sales are improving but expenses are rising faster for example. In such a scenario your profit margins will erode over time, and if not addressed, impact on your future potential profitability.

6. The Profit & Loss statement

Totalling all your earnings and then expenses ensures you can then construct a Profit & Loss Statement . This works by subtracting total expenses from earnings to establish if your business is in profit, or not. A positive number from this calculation means your business is making a profit, a negative number represents a loss.

All of this can be critical in feeding into future budgets and assessing if costs need to be cut, revenue improved to maintain current profit margins.    

7. Trends and seasonal trading

Your business may be prone to seasonal trading , periods of high sales followed by much slower demand. It is important to identify this in the revenue projections of your budget. This then helps pinpoint what your likely cash position will be at various points throughout the year based upon likely revenue and expenditure for that time frame.

This level of intelligence means during periods of high trade, money can be set aside for various items of expenditure that may need to be purchased during an off season. It will also inform how much resource is likely to be needed when periods of peak trade take place.

You can then factor in how many additional employees or product materials are needed to satisfy peak customer demand.  

Allocating tasks throughout the business

Targets should be set in conjunction with the people who will be responsible for meeting them. this should then also feed into reporting so that expenditure plans are monitored and adhered to. budgets are no good unless they are reviewed regularly..

Revisiting the budget often means overspending or underspending can be noted, and corrective adjustment made if absolutely necessary. Doing this feeds into your management accounts and can help you obtain a detailed understanding of your cash flow and overall cash position .

Clarity as to your cash position ensures you can understand the financial health of your business in real time. Knowing where you are then provides a clear picture of what needs to be done to get you to where you're looking to head to.

Finally, as noted earlier, all this insightful data can then be used at the end of the year to re-start the process by informing future budgets, operational requirements, and the various forecasts. 

The content of this post was created on 15/02/2022 and updated on 17/02/2022. Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

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What Is a Budget?

Definition & Examples of a Budget

Johner Images / Getty Images

A budget is a financial plan used to estimate future income and expenses. The budgeting process may be carried out by individuals or by organizations. Budgets help an entity determine whether it can continue to operate with its projected income and expenses.

Learn why budgets are important and some ideas to help you create one for your business.

A budget is an outline for how an entity plans to maintain financial health. Budgets can be made by any entity that has financial concerns—whether it's a couple budgeting out their year, a corporation budgeting for the next fiscal quarter, or a government agency budgeting how it will spend its limited resources.

Many people use budgets to help control their spending. For example, a family may limit their restaurant spending each month to $100.

How Does a Budget Work?

A budget can be as complex or as simple as the entity wishes to make it. A budget may be jotted down on a notepad, or it may be carefully calculated using spreadsheet software. There are also financial software applications like Quicken or QuickBooks that are created specifically to help people create and maintain a budget.

Budgets are especially important for people starting and running their own businesses . A properly prepared and updated business budget serves several purposes.

Plan Startup Needs for Your Business Plan

Perhaps the most important aspect of budgeting for businesses is that it helps you gather information for a business plan, including all the items and expenses necessary for a startup. You need to know what it will cost you to open your doors on the first day of your business. It includes inventory, furniture and fixtures, computers, software, and the costs of finding and securing a location for your business. Budgets list all those expenses and income on an easy-to-reference document, which will be helpful to you and any potential financers.

Get a Business Loan

After a business is up and running, there are still times when you will need your budget and other financial spreadsheets to get a business loan . You will probably need to borrow money for a startup. A budget shows your lender how much you need and what your cash flow situation will look like in the first three years of your business. A reasonable budget can increase your credibility with your lender.

Plan Your Spending

Your budget can give you information about how much you can spend each month and how much you can take out of your business as a salary to live on. As you start out, you may not be able to take much, but you can see what the future looks like, and you can plan for your living expenses as you get started.

Know Your Required Profit

If you set up your budget on a "required profit" basis, you can see how much money you need to make to meet all your expenses, including personal expenses. A required profit budget starts with all the expenses you need to pay each month, leaving the required profit as the income number needed to balance the budget.

When you are estimating income and expenses, estimate income low and expenses high. In other words, be pessimistic about both income and expenses. Then, when something unexpected happens, you are prepared.

How to Create a Budget 

The process for preparing a monthly budget for your business requires collecting information and following some simple steps. You may wish to use a simple business budgeting worksheet as an outline to create your budget. The Small Business Association has samples you can use, including one specifically for small startups . Also, most business accounting software has a budgeting feature.

First, list all sources of monthly income or revenue. This will include sales revenue and interest from investments. If your business doesn't get paid immediately in the form of cash or credit, then deduct a percentage of your expected income for late-payments and non-payments by customers.

The budget process for an existing business is different from a business startup budget . An existing business will have a history of sales and expenses, but startup budgets have to make assumptions about revenue.

List all your required fixed expenses, like rent or mortgage and utilities like your phone bill. These are payments you must make every month, even if you have less income than expected. If your fixed expenses are too close to your expected income, you may have trouble making your payments. See if you can cut down on your fixed expenses or turn them into variable expenses .

Variable expenses are non-recurrent expenses that are tied to sales. For example, if you have fewer customers, you may need fewer phone or driving expenses. Include expenses to capture new customers in this list, like advertising expenses.

Create columns for actual and budgeted income and expenses, so you can see how the budget works out in real-time. If you're using budgeting software, you can use the "budget vs. actual" feature to see how your actual spending and income compare with your budget.

Key Takeaways

• A budget is a financial plan that outlines an entity's expenses and income.
• Any entity with finances can make a budget, including individuals, businesses, nonprofits, and government agencies.
• A budget is an important aspect of a business plan.

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Budgets - Introduction

Last updated 22 Mar 2021

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Budgetary control is the process by which financial control is exercised within an organisation.

Budgets for income/revenue and expenditure are prepared in advance and then compared with actual performance to establish any variances .

Managers are responsible for controllable costs within their budgets and are required to take remedial action if the adverse variances arise and they are considered excessive.

There are many management uses for budgets. For example, budgets are used to:

• Control income and expenditure (the traditional use)
• Establish priorities and set targets in numerical terms
• Provide direction and co-ordination, so that business objectives can be turned into practical reality
• Assign responsibilities to budget holders (managers) and allocate resources
• Communicate targets from management to employees
• Motivate staff
• Improve efficiency
• Monitor performance

Whilst there are many uses of budgets, there are a set of guiding principles for good budgetary control in a business.

In an effective budget system:

• Managerial responsibilities are clearly defined – in particular the responsibility to adhere to their budgets
• Individual budgets lay down a plan of action
• Performance is monitored against the budget
• Corrective action is taken if results differ significantly from the budget
• Departures from budgets are permitted only after approval from senior management
• Unaccounted for variances are investigated

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How to Plan an Event: Event Planning Framework (+Free Checklist)

May 14, 2024

The complete platform for all your events

Posted on may 14, 2024.

Thinking of how to plan an event in 2024 comes with its set of challenges and opportunities, usually a task that many shy away from due to the many activities the individual would have to keep an eye on. With the right approach, you can navigate the intricacies of the event planning process, from setting tangible goals to determining if your event was worth the effort and planning for different scenarios. 

We have carefully curated 8 steps that will serve as your event planning guide, offering tips, strategies, and insights into each phase of the event planning process. Download our complimentary event planning checklist for more tips on how to plan the perfect event from start to finish.

Table of Contents

How Do I Plan The Perfect Event?

Planning a successful event might seem challenging, but with thorough preparation, you can come very close to achieving perfection. Experienced event planners understand that unexpected issues are likely to arise, and the key to handling these surprises lies in having backup plans for common problems. This proactive approach allows you to address issues swiftly, minimizing any discomfort for attendees and preventing significant losses for sponsors.

Effective planning ensures that everyone, from the organizers to the guests, enjoys a seamless experience. The more prepared you are, the smoother your event will run. To assist you, we have created a checklist to help ensure your event operates efficiently and successfully.

1. Defining the Event’s Purpose and Objectives

When thinking of how to plan an event, defining the event’s purpose and objectives is the first and most important step. Knowing why you are hosting the event and what you want to achieve will guide all your decisions, like choosing the venue and promoting the event. It helps your team work together, attracts the right attendees, and provides a way to measure your success. In this section, we will explain the steps to define your event’s purpose, set clear goals, and ensure everything aligns with your overall plan.

I. Planning & Goal Setting

• Understand Your Event’s Goals and Budget: Start by identifying what you aim to achieve when deciding how to plan an event. Whether it’s increasing brand awareness, generating revenue, or engaging a specific audience, having clear goals will guide every decision you make. Align these goals with your budget to ensure feasibility.
• Utilize the SMART Framework for Objective Setting:
• Specific : Define precise outcomes you wish to achieve.
• Measurable : Establish criteria for measuring success at your event.
• Achievable : Ensure that your goals are within the scope of your resources.
• Relevant : Your goals should align with your organization’s overall mission.
• Time-bound : Set deadlines to create urgency and drive action.
• Define Key Performance Indicators (KPIs) : Select metrics that will allow you to measure the success of your event effectively. Common KPIs that you can use include social media engagement, number of registrations, and email marketing response rates.

II. Crafting a Strategic Event Blueprint

• Event Vision and Planning Timeline: Visualize your event’s goals and sketch a timeline from planning to execution. This helps you maintain focus and ensures timely task completion.
• Venue and Audience Alignment: Choose a venue that fits your logistical needs and budget and appeals to your target audience. Consider factors like location, accessibility, and amenities.
• Sponsorship and Partnership Planning: Develop appealing sponsorship packages and identify potential partners who share your vision. This can provide additional resources and enhance event exposure.
• Crisis Management Preparedness: Outline a plan to address potential emergencies or unexpected challenges. This ensures you remain in control, even when unforeseen circumstances arise.

III. Setting Milestones and Feedback Loops

• Break Goals into Manageable Tasks: Use the BSQ framework—Think Big, Act Small, Move Quick—to break down your main objectives into smaller, actionable items. This makes the overall goal less daunting and easier to manage.
• Regular Check-Ins and Adjustments: Schedule regular meetings to review progress against your milestones. This is crucial for making necessary adjustments and keeping the event on track.
• Post-Event Analysis : The InEvent analytics feature allows you to gather feedback from attendees, sponsors, and staff. This information is invaluable for measuring success against your KPIs and planning future events.

Clearly defining your event’s purpose and objectives sets a solid foundation for all subsequent planning activities. This structured approach not only streamlines the event planning process but also significantly increases the likelihood of its success, ensuring that every element is aligned with your strategic goals.

2. Budget Planning

Budget planning involves figuring out how much money you have and how much you will spend on different parts of the event, like the venue, food, activities, and marketing. 

A good budget helps you avoid running out of money and ensures you can pay for everything you need. Some of the ways you can achieve this include: 

I. Establish Your Overall Budget

To effectively start your budget planning , start by determining the total amount of funds available for your event. This involves calculating expected revenue streams, such as ticket sales, sponsorships, and vendor contributions. Simultaneously, assess all potential expenses, prioritizing them to ensure that essential costs are covered first. This step is foundational in creating a realistic budget that aligns with your event goals.

II. Create a Detailed Budget Breakdown

• List and Prioritize Expenses: Make a comprehensive list of all expected expenses, categorized by priority and necessity. This should include venue rental, catering, entertainment, staff salaries, marketing, and technology costs for hybrid or virtual components.
• Allocate Funds Accordingly : Assign a portion of your budget to each category based on their priority and impact on the event experience. Remember to allocate a significant portion to high-impact areas, such as food and beverage (55% of your budget).

III. Implement Strategic Cost-Saving Measures

• Multiple Date Options : Provide vendors with 2-3 date options. This flexibility can help you negotiate better rates and secure preferred venues and suppliers.
• Request for Proposals (RFP): Draft a detailed RFP that includes all event specifics. This document should request itemized vendor quotes, helping you compare and select the best offers. Here, using an RFP template may be a better option to give you a bird’s eye view of everything that you need.

IV. Plan for Unforeseen Expenses

Establish a contingency fund to cover unexpected costs, such as sudden price hikes in supplies or additional safety measures. It is typically advisable to set aside 10-15% of your total budget for contingencies.

V. Monitor and Adjust the Budget Regularly

• Track Spending: Regularly review expenditures against the budget to ensure you are on track. This helps in identifying areas where costs may be escalating unexpectedly, allowing for timely adjustments.
• Revenue Tracking: Keep a close eye on revenue streams like ticket sales and sponsorships. Adjust your spending plans based on actual incoming revenue to avoid overspending.

VI. Use Technology to Streamline Budget Management

Leverage event management software to keep track of all financial transactions and budget adjustments. These tools offer dashboards that provide real-time insights into your financial status, helping you make informed decisions quickly.

By following these structured steps in your event planning process, you ensure that every dollar spent is an investment towards the success of your event, optimizing both financial resources and event outcomes.

3. Venue Selection and Sourcing

The venue sets the tone for your event and can impact everything from attendance to the overall experience. When selecting a venue , consider factors like location, size, amenities, and cost. Make sure it matches the type of event you are hosting and meets the needs of your guests. This section will cover the steps to find and choose the perfect venue, including researching options, visiting sites, and negotiating contracts.

I. Start Early to Secure the Best Options

Begin your venue search about 8 months in advance as early as possible. This early start gives you a better selection of venues and more leverage in negotiations.

II. Utilize a Variety of Search Methods

Explore different platforms to widen your search:

• Use search engines and social media for the latest trends and popular venues.
• Try venue-sourcing platforms and convention and visitors bureaus for comprehensive listings.
• Send in direct inquiries to venues that have caught your attention in past events or recommendations.

III. Key Considerations for Venue Selection

When selecting a venue, consider the following to ensure it meets all your event needs:

• Location and Accessibility: Ensure the venue is accessible for all attendees, considering public transport links and parking facilities.
• Capacity and Layout: Check if the space conveniently accommodates your guest list and event setup.
• Amenities and Services : Verify the availability of essential services such as A/V equipment, internet access, and catering.
• Cost and Flexibility in Dates: Flexibility with your event date can significantly affect venue availability and pricing.

IV. Detailed Venue Evaluation

• Visit Potential Venues: Drop by the venues to assess factors like traffic flow, which can impact the attendee experience.
• Check for Necessary Licenses and Insurance: Ensure the venue has all required licenses and inquire about their insurance policies to understand what is covered.
• Review Venue Contracts Thoroughly: Look for force majeure clauses and check whether the venue requires you to use their vendors for services like catering or security.

VI. Negotiation and Finalization

• Negotiate Terms : Don’t hesitate to negotiate prices and terms. Venues often have flexibility, especially if your event date is flexible.
• Get Everything in Writing : From costs to cancellation policies, ensure all details are documented to avoid future misunderstandings.
• Use an RFP Template : Clearly communicate your requirements and expectations using a well-organized Request for Proposal (RFP) template .

VII. Logistics and Additional Arrangements

• Parking and Transportation: Tools like InEvent’s intuitive corporate travel management feature can help manage flight information, hotel arrangements, invites, attendees, and luggage tracking. Also, if the venue doesn’t have sufficient parking, arrange nearby options or discounts with local transport services like Uber or Lyft.
• Audiovisual and Decor Needs: Confirm if you need external suppliers for A/V equipment and decorations or if the venue provides them.

4. Engaging Attendees and Sponsors

For attendees, this means creating an exciting and interactive experience that keeps them interested and involved. For sponsors, it means providing valuable exposure and opportunities to connect with their target audience. 

Here, you’ll find various strategies to boost attendee engagement, such as interactive activities and personalized communication, along with effective methods to attract and satisfy sponsors by highlighting the benefits of supporting your events.

I. Influencer Marketing and Personalized Experiences

• Leverage Influencer Marketing: Collaborate with influencers who resonate with your target audience to amplify your event’s reach. These influencers can share personalized experiences and insights, making the event more relatable and engaging.
• Customize Attendee Experiences: Offer personalized event paths and content catering to your attendees’ interests. This can include tailored workshops, breakout sessions , and entertainment that align with their preferences and professional needs.

II. Effective Sponsor Engagement Strategies

• Research Potential Sponsors : Understand your sponsors’ business objectives and how your event can help them achieve them. This preliminary research will guide your approach and communication, ensuring a professional interaction.
• Keep Sponsors Informed: Regular updates about the event planning process can help maintain transparency and build trust with your sponsors.

III. How to Measure Engagement Levels of Sponsors and Attendees

• Track Engagement Metrics : Use tools to measure live participation, booth visits, and interaction with sponsored content. This data can help refine future strategies and demonstrate ROI to sponsors.
• Post-Event Feedback: Collect feedback through surveys and debrief meetings to gauge sponsor and attendee satisfaction and allow continuous improvement.

IV. Incorporating Technology for Enhanced Interaction

• Event Planning Software : Utilize an adaptable software like the InEvent event management platform to analyze attendee behavior trends and preferences. This insight allows for more targeted content and interactions during the event.
• Mobile Event Apps : Deploy apps to help attendees navigate the event smoothly, access session details, and interact with content and other participants.

V. Building an Engaging Content Track

• Diverse and Dynamic Content : Develop a content track that includes a variety of topics and delivery styles, ensuring it appeals to a broad audience. Incorporate elements of gamification and interactive media to keep the content engaging.
• Expert Speakers and Moderators : Select speakers and moderators who are knowledgeable and excellent at engaging with the audience. Their ability to connect and interact can significantly enhance the attendee experience.

VI. Networking and Interaction

• Facilitate Meaningful Connections: Arrange networking sessions that encourage interaction among attendees. Use creative setups like themed networking groups or matchmaking sessions to foster connections.
• Interactive Layout Design: Consider the event space layout to facilitate interaction. Utilize setups that encourage attendees to engage with each other and with speakers, such as circular seating arrangements or interactive booths.

VII. Beyond the Event

• Pre- and Post-Event Engagement: Engage with attendees before and after the event through social media, personalized emails, and community-building activities. This helps maintain excitement and prolong the event’s impact .
• Continued Learning and Interaction : Offer resources like session recordings or summaries post-event to keep the conversation going and reinforce the value provided.

By implementing these strategies, you ensure that both attendees and sponsors find your event valuable and engaging, enhancing their experience and increasing the likelihood of their continued participation in future events.

5. Event Marketing and Promotion

The importance of event marketing in getting people excited and ensuring a great turnout can be overstated. Effective marketing means using various channels like social media, email, and traditional advertising to reach your target audience. Promotion helps create buzz and encourages people to talk about your event. Let’s discuss creative ways to market your event, from engaging content to teaming up with influencers so your event gets noticed and attracts a big crowd.

I. Leveraging Social Media for Event Promotion

• Hashtag Campaigns: Initiate pre-event buzz using specific hashtags, much like the Adobe Summit, which successfully created anticipation and engagement through Twitter. This approach not only increases visibility but also encourages interaction.
• Behind-the-Scenes Content: Share exclusive content that gives a sneak peek into the event preparations. This strategy builds excitement and a sense of exclusivity among potential attendees.

II. Influencer Collaboration

• Partner with Influencers: Collaborate with influencers who align with your event’s theme and audience. For example, Fashion Nova’s strategy of partnering with influencers for product launches can be adapted to boost event attendance and credibility.
• Content Sharing: Encourage influencers to share personalized stories or experiences related to your event, enhancing trust and interest among their followers.

III. Integrating Virtual and Hybrid Event Elements

• Remote Participation: Embrace the norm of remote attendance, as seen with Apple’s WWDC , which successfully transitioned to a virtual format and attracted a significant online audience.
• Customized Attendee Experiences: To improve participant engagement and satisfaction, use data to tailor interactions and offerings for a customized attendee experience.

IV. Data-Driven Marketing Approaches

• Behavioral Insights: Use past attendee behavior data to refine your marketing strategies. A prime example is Google I/O’s approach of analyzing previous attendee interactions which can guide your promotional tactics, ensuring they are more targeted and effective.
• Real-Time Analytics: Implement tools to monitor the effectiveness of your marketing strategies during the event, allowing for immediate adjustments and improvements.

V. Execution and Monitoring

• Analytics Tools : Use advanced analytics tools to track the performance of your marketing strategies in real-time, ensuring you can quickly pivot or intensify successful tactics.

VI. Analysis and Optimization

• Regular Reviews : Post-event, hold review meetings to discuss what worked and what didn’t, incorporating feedback from attendees, teams, and stakeholders to enhance future events.
• Crowdsourced Feedback: Engage your audience in the evaluation process by soliciting their insights, which can provide valuable perspectives on improving event experiences.

VII. Best Practices in Event Marketing

• Advance Scheduling: Plan and schedule your marketing activities well in advance to align with key event milestones, ensuring maximum exposure and engagement.
• Branding Consistency: Maintain a cohesive theme throughout all promotional materials and communications to strengthen brand identity and message clarity.

VIII. Virtual Event Marketing Techniques

• Technology Utilization: Employ the appropriate technology, such as virtual Attendee Hubs, to facilitate engagement and interaction during online events.
• Revenue Tracking: Identify and analyze which marketing campaigns are most effective in generating revenue and attracting attendees, allowing for focused investment in the most productive tactics.

By integrating these strategies into your event marketing and promotion plan, you can significantly enhance the reach and impact of your event, ensuring it resonates well with both attendees and sponsors.

6. Designing the Event Experience

Designing the event experience is another very important step when thinking of how to plan the perfect event. It is all about creating an atmosphere that leaves a lasting impression on your attendees. This includes everything from the layout and decorations to the activities and overall flow of the event. It’s about ensuring every detail contributes to a memorable and enjoyable experience. Some unique ideas and practical tips for crafting an event that delights your guests and keeps them engaged from start to finish may include:

I. Personalizing the Event Experience: Personalization is key to resonating with your attendees and creating a truly memorable event. Begin by understanding your audience’s preferences and expectations. This can be achieved by analyzing their interactions with the event agenda, such as which sessions they start or favorite. To gauge engagement and adapt in real-time, incorporate live polls during sessions, ensuring content relevance and attendee satisfaction.

II. Utilizing Event Technology: Event technology has transformed the way experiences are delivered. The InEvent virtual lobby allows for a seamless integration of various elements, ensuring a cohesive experience whether attendees are in person or participating virtually. Whether your choice of events is themed or just the regular professional and simple type of event, the virtual lobby can be designed to look just as festive and as modern as you want it to.

III. Creating a Sensory Experience: Engage your attendees’ senses to make the event unforgettable. This can involve everything from strategically using lighting and color to influence mood to incorporating scents and interactive elements like virtual reality setups or tactile experiences. Each sensory touchpoint should be carefully crafted to enhance the event’s overall atmosphere and emotional impact.

IV. Interactive Installations and Gamification: Boost attendee participation by integrating gamified experiences and interactive installations. These could range from simple app-based games that encourage exploration of the event space to complex multi-sensory virtual reality simulations. Such elements not only make the experience more engaging but also help in creating memorable moments.

V. Strategic Design Elements: Pay attention to the design details that shape the event environment. This includes everything from the layout and furnishing to the patterns and lighting used throughout the venue. Each element should contribute to a functional, accessible, visually appealing space that encourages interaction and fulfills the event’s purpose.

VI. Crafting Moments of Wonder: Incorporate elements of surprise and delight, such as unexpected performances or unique interactive displays. These moments create peaks in the attendee experience, which are often the most memorable parts of an event. Utilize the peak-end rule to ensure these moments are strategically placed to maximize impact and leave a lasting impression.

VII. Continuous Engagement: Think of the event experience as an ongoing journey beyond the actual event. Engage with attendees before and after the event through personalized communications and provide resources like session recordings or summaries to extend the value of the event. This approach helps build a community around your event, encouraging ongoing interaction and setting the stage for future events.

7. Logistics and Operations Management

Event logistics and operations management are pivotal to the success of any event, ensuring that every aspect runs smoothly from start to finish. Here’s how you can master this crucial phase of event planning.

I. Streamlining Event Logistics

• Create an Event Planning Timeline : Share a detailed timeline with your team to keep everyone on the same page. This timeline should include all critical milestones and deadlines.
• Assign Team Members to Key Logistics Tasks : Clearly define roles and responsibilities for each team member, ensuring all logistics are covered from registration to post-event activities.
• Utilize Event Management Software : Implement software solutions for registration, ticketing, and attendee management. This technology can also handle lead tracking and provide virtual and hybrid event solutions.

II. Effective Team and Vendor Management

• Ensure Clear Communication : Maintain regular communication with both your team and vendors. Confirm all details in writing to avoid misunderstandings regarding contracts, pricing, and deliverables.
• Conduct Regular Check-Ins : Schedule frequent meetings to ensure that all tasks are progressing as planned and to make necessary adjustments.
• Assign a Troubleshooting Team Member : Designate a team member to handle any issues during the event, ensuring they are resolved quickly and efficiently.

III. Preparing for the Unexpected

• Develop Contingency Plans : Identify potential risks and devise strategies to address them. This could include backup vendors, alternative venues, or additional security measures.
• Train Staff on Emergency Procedures: Ensure all team members are familiar with emergency protocols and know how to act swiftly and effectively in various scenarios.
• Communicate Plans to All Involved: Make sure your contingency plans are known to all team members and vendors well in advance so everyone is prepared to act if needed.

IV. Enhancing Operational Efficiency

• Optimize Resource Allocation: Reach out to hotels and venues to secure the best deals and the rental of necessary equipment, saving both time and money. Remember to communicate the lodging details to your attendees to avoid the rush hour panic that usually occurs before the start of your event.
• Implement Customer Service Training: Provide training for your staff to enhance their communication and interpersonal skills, ensuring a high level of service throughout the event.

V. Coordination and Setup

• Coordinate Vendor Arrival and Setup (Bump In) : Arrange precise timings for vendors to set up their stations, ensuring everything is ready before the event starts.
• Schedule Run-Throughs : Conduct a full run-through with your team before the event goes live to address any last-minute adjustments.
• Manage Event Breakdown (Bump Out) : Plan and oversee the post-event breakdown, ensuring the venue is cleared efficiently and that all vendors have vacated the premises.

8. Measuring and Analyzing

This involves collecting data on attendance, engagement, and feedback from both attendees and sponsors. Analyzing this information can help you identify strengths and areas for growth, ensuring your next event is even better. Some ways you can achieve this may include:

I. Utilizing Advanced Analytics for Event ROI

The InEvent Event Management Platform offers advanced analytics capabilities that empower you to calculate and analyze your event’s return on investment (ROI). This tool allows you to effectively share detailed reports with stakeholders and sponsors, ensuring they are well informed about the event’s success and areas for improvement.

II. Attendance and Engagement Metrics

• Check-In vs. Registration Analysis : Compare the number of event check-ins to total registrations to identify discrepancies and potential registration or entry process issues.
• Session Engagement: Measure speaker performance and overall session engagement by analyzing views, ratings, and audience interaction. This helps in understanding which topics or speakers resonated most with attendees.
• Community Interaction: Monitor the number of active community members and messages exchanged among attendees. This metric is crucial for evaluating the effectiveness of networking opportunities provided at the event.

III. Feedback Collection and Analysis

• Event Surveys: Implement surveys before, during, and after the event to gather attendee feedback. This immediate and direct input is invaluable for assessing satisfaction and identifying areas for improvement.
• Continuous Feedback Loop: Encourage attendees to provide feedback by making the process quick, simple, and accessible. Use this ongoing feedback to make real-time adjustments to the event.

IV. Sales and Marketing Impact

• Lead Generation Metrics : Track the number of qualified leads and open sales opportunities generated from the event. This data is critical for evaluating the event’s effectiveness in driving business goals.
• Account-Based Marketing Analysis: Analyze how the event influences target accounts to quantify the impact of your account-based event marketing strategy.

V. Long-Term Strategic Insights

• Event Growth Tracking: Examine registration and attendance numbers from one event to the next to inform long-term event strategy and growth.
• Repeat Attendee Rate: Monitor the number of repeat attendees as an indicator of the event’s ability to maintain and grow its audience base.

VI. Comprehensive Post-Event Reporting

• Event Notebook: Prepare a detailed event notebook that includes a complete report from every committee, encapsulating all essential information such as budgets, contracts, and a list of areas for improvement.
• Team and Vendor Performance: Evaluate the performance of your team and vendors to ensure all parties met expected standards and contributed positively to the event.
• Goal Achievement Review: Review your initial event goals and objectives and evaluate whether they were achieved using both qualitative and quantitative data.

VII. Documenting and Learning from Each Event

• Post-Event Debrief: Conduct a thorough post-event debrief with your team and attendees. Use surveys and direct feedback to gather comprehensive insights into what worked well and what could be improved.
• Archiving for Future Reference: Ensure all evaluations and data analyses are well-documented and stored for future reference. This historical data becomes a valuable resource for planning future events and benchmarking success.

By diligently measuring and analyzing these aspects, you ensure that each event not only meets but exceeds expectations, providing actionable insights for continuous improvement and strategic planning in event management.

Congratulations. You’ve successfully gone through our carefully curated checklist on how to plan your perfect event. This framework will help you map out your process, craft impactful experiences, and ultimately achieve the event success you’ve always want.

If you are ready to implement these strategies and need a more compact checklist, download our complimentary Event Planning Checklist/Guide for conferences and virtual events. This comprehensive resource provides you with a step-by-step roadmap, along with valuable tips and reminders, to ensure that every aspect of your event is meticulously planned.

By downloading your checklist today, you’ll gain the confidence to plan the most exceptional events that leave a lasting impression on your audience.

About the Author / Adedoyin

You might also like, 9 strategies for cost-effective event management in 2024, what is an event management software types, benefits, and features..

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Mayor Todd Gloria Releases May Revision of Fiscal Year 2025 Budget

DESPITE TOUGH BUDGET YEAR, MAYOR ENSURES CITY DELIVERS ON CORE SERVICES

FOR IMMEDIATE RELEASE  May 14, 2024

CONTACT: [email protected]

SACRAMENTO –Mayor Todd Gloria today released his updated budget for Fiscal Year 2025. The spending plan maintains core City services and protects the progress the administration has made over the past three years in addressing homelessness, building more housing, keeping the public safe and repairing key infrastructure such as roads and stormwater systems.  

“The substantial deficit facing our city required tough decisions – none of which I took lightly. The final proposed budget released today is a fiscally prudent strategy that protects essential City services and provides additional funding for programming at our libraries and parks, as well as homelessness prevention programs,” said Mayor Todd Gloria. “As your Mayor, I committed to San Diegans that I would draw upon my years of experience to guide us through this difficult financial time and avoid major impacts like browned-out fire stations, reduced hours at libraries or shuttered recreation centers. This budget is balanced and on-time and protects the progress we’ve made on the issues San Diegans care about most.”    

Despite a $172 million deficit, the Mayor’s proposed budget avoids major impacts such as shutdowns of public facilities like fire stations, libraries, recreation centers and pools – thanks in part to prudent actions taken at the direction of the Mayor in March, such as the suspension of non-essential spending in City departments, as well as additional internal controls to ensure the City is filling only the most critical positions before the end of the fiscal year. These mitigation actions proved effective in saving money, allowing the City to make fewer budget cuts than would otherwise have been necessary. 

In adherence to the City budget process, the Mayor is required to propose a draft budget in April based on economic conditions known at the time, and the City Council then holds hearings to solicit public input on the draft budget. In May, the Mayor releases what’s known as the May Revision, based on updated information. This is the final budget proposal that the City Council will vote on in June. 

“Advocacy makes a difference, and this is no better demonstrated than by the updates in the Mayor’s May Revision restoring priority programs,” said Council President pro Tem Joe LaCava. “The community spoke, the Council listened, and the Mayor responded by restoring programs that protect neighborhoods, prevent evictions, and act on our homelessness crisis. We must continue to focus limited resources where they will do the most good and make difficult cuts where they will do the least harm.” 

The Mayor’s proposed budget maintains key services by trimming primarily non-personnel expenses from department budgets, sweeping the unused balances from various special funds back into the General Fund, suspending contributions to reserves, strategic use of grant funding and deploying other one-time measures.   

Those measures included a request to the San Diego Housing Commission to use $15 million in its reserves to backfill the funding for existing programs. In response, Housing Commission leadership stepped up and identified $8 million in funding that can be reallocated, which will require separate Council action for approval.  

The remaining $7 million will be covered by an accelerated disbursement of funding to the City from Round 5 of the State of California's Homeless Housing Assistance and Prevention program (HHAP), secured by the City's Department of Government Affairs.  

Mayor Gloria’s budget provides funding for the following housing and homelessness services programs administered by the San Diego Housing Commission: 

• Eviction Protection Program: The revised budget fully funds the program at $3 million. 
• Multidisciplinary Outreach Team: The revised budget contributes $350,000 to the homelessness outreach program from the general fund, with another $750,000 funded through a state grant. 
• Housing Instability Prevention Program: The revised budget increases funding to the rental-assistance program by $750,000 for a total of $3 million. 
• Neil Good Day Center: The revised budget increases funding for the daytime homelessness services program by $419,000 for a total of $919,000.

“Now, amidst these unprecedented fiscal challenges, we at the Housing Commission understand that it is imperative that we provide resources to focus on supporting those who rely on us,” said Mitch Mitchell, chair of the San Diego Housing Commission. “As part of the City team, we are happy to offer the Commission’s support to do that and look forward to ongoing collaboration with the Mayor and City Council to continue fulfilling our mission this fiscal year and well into the future.”

“Through the Eviction Prevention Program, Legal Aid Society of San Diego (LASSD) provides free legal services to low-income City of San Diego tenants. The EPP is incredibly effective and efficient at preventing homelessness, which benefits tenants, landlords, and the city as a whole. Moreover, the EPP furthers equity by ensuring that justice is not a luxury only to be afforded to the wealthy,” said Joanne Franciscus, CEO and executive director of LASSD. “On behalf of LASSD, our clients, and the many San Diego residents that we will be able to serve over the coming year, I want to express my gratitude to Mayor Gloria and the City Council for working hard to ensure that this critical program remains fully funded, so that our most vulnerable tenants don’t have to suffer the lasting trauma that eviction and homelessness cause.” 

The budget also provides funding for the following programs: 

• Parks and Recreation: Teen center programming in Districts 4, 8 and 9 ($758,000), youth swimming ($421,000) and Come Play Outside ($78,000), an initiative launched by Mayor Gloria in 2021 that helps provide low- or no-cost programs and events in historically disadvantaged communities.
• SD Access 4 All: Wi-Fi access ($500,000), library hotspot checkouts ($227,000), digital literacy programming ($57,000)
• Libraries: Youth service librarian positions ($382,000), after-school programs ($250,000), library materials donation match program ($300,000)
• Climate Equity Fund: Traffic-signal upgrades to improve safety in Barrio Logan and traffic-calming measures on 47th Street in Chollas View ($1.1 million)
• No Shots Fired , a collaborative effort to provide outreach and resources to known gang members in specific communities and offer them an opportunity for them to exit gang life ($250,000).
• San Carlos Library construction planning ($4.7 million)
• San Diego Police Department:  Juvenile Services Team ($1.6 million), front counter staffing ($1.6 million)
• San Diego Fire-Rescue Department: San Pasqual Response Team ($897,000)
• Labor relations: Accounting for new contracts currently under negotiation with the unions representing Police and Fire-Rescue personnel ($4.4 million)

“We at the San Diego Parks Foundation are thrilled that the City will continue the investments we’ve made in providing free public access to Wi-Fi in 59 of our recreation centers, and that programs like youth swimming classes and our innovative Come Play Outside initiative will continue to be funded,” said Michel Anderson, chair of the San Diego Parks Foundation. “We thank Mayor Gloria for ensuring that San Diegans can access these vital services, especially those in historically disadvantaged communities.”

The funding additions in the revised budget augment a proposed budget that maintains core City services and protects the progress the City has made over the past three years in the key priority areas of addressing homelessness, accelerating production of housing that San Diegans can afford, repairing roads and other critical infrastructure, and keeping San Diegans safe.

Highlights of the proposed budget include:

• A new 1,000-bed shelter for unhoused San Diegans
• A new Safe Parking site on City-owned land near the airport known as H Barracks
• Initiatives that accelerate permitting for 100% affordable housing projects and projects in the transit-oriented Complete Communities program
• 75 miles of road repaving
• Flood control and green infrastructure projects
• Staffing and other operating costs for the new Torrey Pines fire station

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What to know about Gov. Newsom’s plan to offset California’s $45-billion deficit

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Faced with a $44.9-billion budget deficit, Gov. Gavin Newsom described a plan to shrink the size of state government and slow his progressive policy agenda by eliminating 10,000 vacant state jobs, pausing an expansion of subsidized childcare and cutting billions in funding for climate change programs.

Newsom’s revised $288-billion budget proposal, announced Friday, projected California’s deficit to be $7 billion more than the shortfall his administration expected in January. The grim forecast was driven by lower than projected state revenues, continuing a pendulum swing from the fiscal boom of the COVID-19 pandemic.

“These are things we worked closely with the Legislature to advance,” Newsom said of the cuts. “None of this is the kind of work you enjoy doing, but you’ve got to do it. We have to be responsible. We have to be accountable.”

Newsom’s plan to close the deficit relies on $17.3 billion in savings from budget cuts he and lawmakers agreed to in April and using $4.2 billion from the state’s rainy day fund and budget reserves for the upcoming fiscal year.

The proposed spending reductions Newsom touched on Friday also reverse and slash an additional $8.2 billion in funding in 2024-25.

Newsom’s proposal includes $3.6 billion less for programs related to fighting climate change, said H.D. Palmer, a spokesperson for the Finance Department. The plan would also cut $2 billion over two years from a program to expand internet connectivity to underserved homes, businesses and community institutions.

The governor’s revised budget proposal, which includes updated revenue projections after the state income tax filing deadline, typically jump-starts negotiations with Democratic leaders in the Senate and Assembly over a final fiscal plan for the upcoming year. The state Constitution requires lawmakers to approve the state budget by June 15.

An ‘incomplete’ plan

The governor’s budget plan released Friday was incomplete compared to prior years. The administration provided only a 50-page summary of his proposal, compared to the more detailed, 260-page document Newsom released in January.

Newsom’s budget news conference was originally scheduled for next Tuesday, the deadline for the governor to share his revised budget with the state Legislature. But Newsom is flying to Rome that day to speak at a climate conference at the Vatican and bumped his presentation up to Friday.

The change left the state Department of Finance, the fiscal arm of his administration, short on time to finalize a full budget summary, and additional documents, Palmer said. More information, his aides said, will be made available when additional documents are made public on Tuesday.

Public defenders, foster kids, climate: Programs created during California’s boom may stall amid deficit

Facing tough financial choices to close a budget shortfall, Gov. Gavin Newsom is proposing cuts to programs that benefit foster kids, public defenders and more

April 18, 2024

How bad is the budget problem?

Newsom cast California’s current financial situation as a return to normal after the federal government provided trillions of dollars in funding to individuals, families, businesses and state governments during the COVID-19 pandemic, payouts that resulted in a historic surplus in California.

But those flush times did not last, and poor revenue forecasts in recent years have also deepened the state’s fiscal troubles.

Newsom’s estimate of a $100-billion surplus two years ago ended up far too rosy, and revenue in subsequent years also fell short of projections. A decision by the federal government to delay the 2022 federal income tax deadline from April to November due to winter storms complicated California’s ability to project revenues last year.

Newsom’s plan seeks to solve the budget deficit for the next two budget years, including additional cuts, reductions and delays to solve an estimated $28.4-billion deficit in 2025-26.

State Sen. Roger Niello (R-Fair Oaks) called out the difference between Newsom’s deficit estimates and much higher models from the Legislative Analyst’s Office.

“He continues to hang on to the unrealistically low deficit with the clear expertise of the LAO stating that the problem is significantly greater than that and that just means that his budget solutions are shooting too low,” Niello said. “We’ll get to the end of another fiscal year where we’re in trouble again, just like this one.”

Why does the deficit number keep changing?

In January, the Newsom administration predicted that California would have a $37.9-billion deficit to reckon with in the budget that lawmakers adopt in June.

Newsom and leaders of the Senate and Assembly reached an early agreement in April on $17.3 billion in reductions though most of those changes will not be passed into law until next month. Lawmakers passed a budget trailer bill that lowers unspent funding allocations in 2022-23 and 2023-24 by $1.6 billion last month.

The deficit number Newsom presented Friday subtracts the $17.3 billion in cuts agreed to earlier from the $37.9-billion deficit estimate from January.

Revenues have fallen short of expectations since January, deepening the budget problem by $7 billion.

Newsom is referring to the shortfall as $27.6 billion in 2024-25, but California is making cuts and reductions to solve a total budget deficit of $44.9 billion this year.

Newsom called it a ‘gimmick.’ Now he’s using the trick to lower California’s massive deficit

With a massive budget deficit in California, Gov. Gavin Newsom is adopting a ‘gimmick’ he previously reversed in an effort to push the problem forward into future years.

April 11, 2024

How will the governor’s cuts affect education?

Under Proposition 98, California has a minimum funding guarantee for schools and community colleges. Newsom is proposing an unusual maneuver to go back and lower the funding requirement for 2022-23 to reflect the lower-than-expected state revenues that came in late last year. The change could ultimately reduce funding for schools by tens of billions of dollars in future years and launch a monumental fight over education funding at the state Capitol.

Early childhood programs face cuts of more than $2 billion in the governor’s new budget proposal, including a 45% cut for the CalWORKS home visiting program , which provides supportive visits to about 3,000 low-income families following the birth of a baby.

He wants to reduce the Middle Class Scholarship program by $510 million and cut $550 million from a program that helps build and upgrade facilities for children in preschool and transitional kindergarten over the next two budget years.

Newsom called a decision to pause $1.4 billion planned to expand child-care availability over two years “difficult,” but a necessary trade-off in order to pay child-care workers higher wages.

“The state was finally making progress on childcare and early childhood initiatives which have been so ignored for so many years. To now cut back on that is disastrous for families and for our future,” said Ted Lempert, president of Children Now and a former California Assembly member.

What about healthcare?

Among proposed healthcare cuts is the elimination of more than $300 million in state and local public health funding — a move that “astounded” organizations like the County Health Executives Assn. of California, which pointed to COVID-19 pandemic woes that were worsened by underfunding and questioned if the state was backtracking.

Newsom also proposes eliminating hundreds of millions from programs meant to train and recruit health workers including nurses and social workers — both industries that have faced staffing shortages.

Healthcare providers who serve California’s low-income patients insured by Medi-Cal stand to lose extra pay meant to encourage healthcare facilities’ participation in the safety net program. The governor’s proposal takes more than $6 billion over multiple years meant for provider rate increases from a tax on managed healthcare organizations, known as the MCO tax, and uses it to support the Medi-Cal program in other ways.

Jodi Hicks, president and CEO of the Planned Parenthood Affiliates of California, said she was “deeply disappointed” by Friday’s budget plan, saying it will “jeopardize access to not just sexual and reproductive care but quality, affordable health care across the board for the nearly 15 million Californians who rely on Medi-Cal.”

Will prisons lose funding?

Newsom’s proposal includes savings from the newly announced deactivation of 46 housing units at 13 state prisons, which would save $80.6 million. This comes as California’s prison population has declined by nearly 25% since 2019 and as the state prepares for the closure of its third prison, which Newsom said is now planned to close as early as November, five months ahead of schedule.

The governor said that, while he is interested in further reducing “the larger footprint” of the prison system, “we want to be mindful of labor concerns, community concerns and trends.” He also expressed concern about the possibility of unanticipated increases in prison populations . A measure that could appear on the November ballot calls for rolling back some criminal justice reforms that have helped reduce incarceration.

Newsom has approved three California prison closures but resists pressure to shutter more

Gavin Newsom could save the state $1 billion annually by closing five more prisons, analysts say. The governor finds himself in a precarious political spot.

April 1, 2024

Will the plan hurt workers?

The April agreement between lawmakers and the governor included $762 million in savings by pausing hiring for vacant state jobs. Newsom’s updated proposal permanently deletes 10,000 open positions, which unions viewed as a potentially better option than furloughs or delaying planned salary increases to save money.

Details of a costly plan to hike pay for healthcare workers to at least $25 per hour are still to come, following months of negotiations between Newsom, unions and hospital leaders.

Newsom signed a bill last year that imposed a new industry minimum wage for California healthcare workers, but has voiced concerns about how fast the state can move on wages due to the deficit. His department estimated that the wage hikes could cost the state $2 billion in its first year of implementation — a figure that SEIU California, the union backing the measure, rushed to refute, urging hospitals to pay a bigger share of the costs.

Newsom was tight lipped on the details on Friday but said a deal is near.

“This budget will not be signed without that deal,” Newsom said Friday.

The budget proposal shared Friday does not include funding for a healthcare minimum wage increase, Palmer said.

As deficit estimate hits $68 billion, Newsom seeks ‘major changes’ to healthcare wage law

Gov. Gavin Newsom said his staff has been working with Democrats in the Legislature on the state’s healthcare minimum wage law in light of budget concerns.

Dec. 7, 2023

What else could be coming?

Negotiations are under way in the Legislature to place as many as three bonds on the November ballot that would ask voters to approve borrowing money to pay for low-income housing, school construction projects and climate-related infrastructure for adapting to floods, fires and droughts. Newsom declined to answer a question about how many of those he would like to go on the ballot.

Newsom said the close-call he experienced in March when his Proposition 1 bond for mental health facilities passed by barely more than 50% has “sobered” conversations about how much voters are willing to support borrowing measures.

“The public wants to see results. They’re not interested in inputs, they’re not interested to talk about how much money we’re spending,” he said. “They deserve results and they demand results. And so when we’re out there promoting these bonds, we need to be mindful of that.”

Times Sacramento bureau chief Laurel Rosenhall and staff writer Jenny Gold contributed to this report.

More to Read

Column: Lots of complaining about California’s tax system. Time to fix it

May 13, 2024

Newsom touts billions in climate spending through California’s cap-and-trade program

May 9, 2024

Newsom and Democratic lawmakers detail first California budget cuts totaling $17 billion

April 4, 2024

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Taryn Luna covers Gov. Gavin Newsom and California politics in Sacramento for the Los Angeles Times.

Mackenzie Mays covers state government and politics in the Los Angeles Times’ Sacramento bureau. Previously, she worked as an investigative reporter for Politico, the Fresno Bee and the Charleston Gazette-Mail. In 2019, she received the National Press Club Press Freedom Award for her political watchdog reporting. She is a graduate of West Virginia University and proud Appalachian.

Anabel Sosa is a reporter for the Los Angeles Times’ Sacramento bureau, covering legislation and politics. She is a graduate of UC Berkeley’s School of Journalism and a California Local News fellow.

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May 16, 2024

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FACT SHEET: President   Biden Takes Action to Protect American Workers and Businesses from China’s Unfair Trade   Practices

President Biden’s economic plan is supporting investments and creating good jobs in key sectors that are vital for America’s economic future and national security. China’s unfair trade practices concerning technology transfer, intellectual property, and innovation are threatening American businesses and workers. China is also flooding global markets with artificially low-priced exports. In response to China’s unfair trade practices and to counteract the resulting harms, today, President Biden is directing his Trade Representative to increase tariffs under Section 301 of the Trade Act of 1974 on $18 billion of imports from China to protect American workers and businesses.   The Biden-Harris Administration’s Investing in America agenda has already catalyzed more than $860 billion in business investments through smart, public incentives in industries of the future like electric vehicles (EVs), clean energy, and semiconductors. With support from the Bipartisan Infrastructure Law, CHIPS and Science Act, and Inflation Reduction Act, these investments are creating new American jobs in manufacturing and clean energy and helping communities that have been left behind make a comeback.   As President Biden says, American workers and businesses can outcompete anyone—as long as they have fair competition. But for too long, China’s government has used unfair, non-market practices. China’s forced technology transfers and intellectual property theft have contributed to its control of 70, 80, and even 90 percent of global production for the critical inputs necessary for our technologies, infrastructure, energy, and health care—creating unacceptable risks to America’s supply chains and economic security. Furthermore, these same non-market policies and practices contribute to China’s growing overcapacity and export surges that threaten to significantly harm American workers, businesses, and communities.   Today’s actions to counter China’s unfair trade practices are carefully targeted at strategic sectors—the same sectors where the United States is making historic investments under President Biden to create and sustain good-paying jobs—unlike recent proposals by Congressional Republicans that would threaten jobs and raise costs across the board. The previous administration’s trade deal with China  failed  to increase American exports or boost American manufacturing as it had promised. Under President Biden’s Investing in America agenda, nearly 800,000 manufacturing jobs have been created and new factory construction has doubled after both fell under the previous administration, and the trade deficit with China is the lowest in a decade—lower than any year under the last administration.   We will continue to work with our partners around the world to strengthen cooperation to address shared concerns about China’s unfair practices—rather than undermining our alliances or applying indiscriminate 10 percent tariffs that raise prices on all imports from all countries, regardless whether they are engaged in unfair trade. The Biden-Harris Administration recognizes the benefits for our workers and businesses from strong alliances and a rules-based international trade system based on fair competition.   Following an in-depth review by the United States Trade Representative, President Biden is taking action to protect American workers and American companies from China’s unfair trade practices. To encourage China to eliminate its unfair trade practices regarding technology transfer, intellectual property, and innovation, the President is directing increases in tariffs across strategic sectors such as steel and aluminum, semiconductors, electric vehicles, batteries, critical minerals, solar cells, ship-to-shore cranes, and medical products.   Steel and Aluminum   The tariff rate on certain steel and aluminum products under Section 301 will increase from 0–7.5% to 25% in 2024.   Steel is a vital sector for the American economy, and American companies are leading the future of clean steel. Recently, the Biden-Harris Administration announced $6 billion for 33 clean manufacturing projects including for steel and aluminum, including the first new primary aluminum smelter in four decades, made possible by the Bipartisan Infrastructure Law and the Inflation Reduction Act. These investments will make the United States one of the first nations in the world to convert clean hydrogen into clean steel, bolstering the U.S. steel industry’s competitiveness as the world’s cleanest major steel producer.   American workers continue to face unfair competition from China’s non-market overcapacity in steel and aluminum, which are among the world’s most carbon intensive. China’s policies and subsidies for their domestic steel and aluminum industries mean high-quality, low-emissions U.S. products are undercut by artificially low-priced Chinese alternatives produced with higher emissions. Today’s actions will shield the U.S. steel and aluminum industries from China’s unfair trade practices.   Semiconductors   The tariff rate on semiconductors will increase from 25% to 50% by 2025.   China’s policies in the legacy semiconductor sector have led to growing market share and rapid capacity expansion that risks driving out investment by market-driven firms. Over the next three to five years, China is expected to account for almost half of all new capacity coming online to manufacture certain legacy semiconductor wafers. During the pandemic, disruptions to the supply chain, including legacy chips, led to price spikes in a wide variety of products, including automobiles, consumer appliances, and medical devices, underscoring the risks of overreliance on a few markets.   Through the CHIPS and Science Act, President Biden is making a nearly $53 billion investment in American semiconductor manufacturing capacity, research, innovation, and workforce. This will help counteract decades of disinvestment and offshoring that has reduced the United States’ capacity to manufacture semiconductors domestically. The CHIPS and Science Act includes $39 billion in direct incentives to build, modernize, and expand semiconductor manufacturing fabrication facilities as well as a 25% investment tax credit for semiconductor companies. Raising the tariff rate on semiconductors is an important initial step to promote the sustainability of these investments.   Electric Vehicles (EVs)   The tariff rate on electric vehicles under Section 301 will increase from 25% to 100% in 2024.   With extensive subsidies and non-market practices leading to substantial risks of overcapacity, China’s exports of EVs grew by 70% from 2022 to 2023—jeopardizing productive investments elsewhere. A 100% tariff rate on EVs will protect American manufacturers from China’s unfair trade practices.   This action advances President Biden’s vision of ensuring the future of the auto industry will be made in America by American workers. As part of the President’s Investing in America agenda, the Administration is incentivizing the development of a robust EV market through business tax credits for manufacturing of batteries and production of critical minerals, consumer tax credits for EV adoption, smart standards, federal investments in EV charging infrastructure, and grants to supply EV and battery manufacturing. The increase in the tariff rate on electric vehicles will protect these investments and jobs from unfairly priced Chinese imports.   Batteries, Battery Components and Parts, and Critical Minerals   The tariff rate on lithium-ion EV batteries will increase from 7.5%% to 25% in 2024, while the tariff rate on lithium-ion non-EV batteries will increase from 7.5% to 25% in 2026. The tariff rate on battery parts will increase from 7.5% to 25% in 2024.   The tariff rate on natural graphite and permanent magnets will increase from zero to 25% in 2026. The tariff rate for certain other critical minerals will increase from zero to 25% in 2024.   Despite rapid and recent progress in U.S. onshoring, China currently controls over 80 percent of certain segments of the EV battery supply chain, particularly upstream nodes such as critical minerals mining, processing, and refining. Concentration of critical minerals mining and refining capacity in China leaves our supply chains vulnerable and our national security and clean energy goals at risk. In order to improve U.S. and global resiliency in these supply chains, President Biden has invested across the U.S. battery supply chain to build a sufficient domestic industrial base. Through the Bipartisan Infrastructure Law, the Defense Production Act, and the Inflation Reduction Act, the Biden-Harris Administration has invested nearly $20 billion in grants and loans to expand domestic production capacity of advanced batteries and battery materials. The Inflation Reduction Act also contains manufacturing tax credits to incentivize investment in battery and battery material production in the United States. The President has also established the American Battery Materials Initiative, which will mobilize an all-of-government approach to secure a dependable, robust supply chain for batteries and their inputs.   Solar Cells   The tariff rate on solar cells (whether or not assembled into modules) will increase from 25% to 50% in 2024.   The tariff increase will protect against China’s policy-driven overcapacity that depresses prices and inhibits the development of solar capacity outside of China. China has used unfair practices to dominate upwards of 80 to 90% of certain parts of the global solar supply chain, and is trying to maintain that status quo. Chinese policies and nonmarket practices are flooding global markets with artificially cheap solar modules and panels, undermining investment in solar manufacturing outside of China.   The Biden-Harris Administration has made historic investments in the U.S. solar supply chain, building on early U.S. government-enabled research and development that helped create solar cell technologies. The Inflation Reduction Act provides supply-side tax incentives for solar components, including polysilicon, wafers, cells, modules, and backsheet material, as well as tax credits and grant and loan programs supporting deployment of utility-scale and residential solar energy projects. As a result of President Biden’s Investing in America agenda, solar manufacturers have already announced nearly $17 billion in planned investment under his Administration—an 8-fold increase in U.S. manufacturing capacity, enough to supply panels for millions of homes each year by 2030.   Ship-to-Shore Cranes   The tariff rate on ship-to-shore cranes will increase from 0% to 25% in 2024.   The Administration continues to deliver for the American people by rebuilding the United States’ industrial capacity to produce port cranes with trusted partners. A 25% tariff rate on ship-to-shore cranes will help protect U.S. manufacturers from China’s unfair trade practices that have led to excessive concentration in the market. Port cranes are essential pieces of infrastructure that enable the continuous movement and flow of critical goods to, from, and within the United States, and the Administration is taking action to mitigate risks that could disrupt American supply chains. This action also builds off of ongoing work to invest in U.S. port infrastructure through the President’s Investing in America Agenda. This port security initiative includes bringing port crane manufacturing capabilities back to the United States to support U.S. supply chain security and encourages ports across the country and around the world to use trusted vendors when sourcing cranes or other heavy equipment.   Medical Products   The tariff rates on syringes and needles will increase from 0% to 50% in 2024. For certain personal protective equipment (PPE), including certain respirators and face masks, the tariff rates will increase from 0–7.5% to 25% in 2024. Tariffs on rubber medical and surgical gloves will increase from 7.5% to 25% in 2026.   These tariff rate increases will help support and sustain a strong domestic industrial base for medical supplies that were essential to the COVID-19 pandemic response, and continue to be used daily in every hospital across the country to deliver essential care. The federal government and the private sector have made substantial investments to build domestic manufacturing for these and other medical products to ensure American health care workers and patients have access to critical medical products when they need them. American businesses are now struggling to compete with underpriced Chinese-made supplies dumped on the market, sometimes of such poor quality that they may raise safety concerns for health care workers and patients.   Today’s announcement reflects President Biden’s commitment to always have the back of American workers. When faced with anticompetitive, unfair practices from abroad, the President will deploy any and all tools necessary to protect American workers and industry.  

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What Is a Budget?

Understanding budgeting, corporate budgets, personal budgets.

• Budgeting Myths

Budgeting Concepts

Sticking to a budget.

• Ways To Budget When Broke

The Bottom Line

• Budgeting & Savings

What Is a Budget? Plus 11 Budgeting Myths Holding You Back

A budget refers to an estimation of  revenue and expenses that's made for a specified future period of time. Budgeting usually occurs on an ongoing basis, with individual budgets being re-evaluated regularly.

Budgets can be made for any entity that needs or wants to spend money , including governments and businesses, people, and households of any income level.

Key Takeaways

• A budget is an estimation of revenue and expenses utilized by governments, businesses, and individuals of any income level.
• A budget is a financial plan for a defined period that can greatly enhance the success of any financial undertaking.
• Corporate budgets are essential for operating at peak efficiency.
• Aside from earmarking resources, a budget can also aid in setting goals, measuring outcomes, and planning contingencies.
• Personal budgets are extremely useful in helping individuals and families to manage their finances.

Investopedia / Julie Bang

A budget is a microeconomic concept that reveals the trade-off made when one good is exchanged for another. In terms of the bottom line—or the end result of this trade-off—a surplus budget means profits are anticipated, a balanced budget means revenues are expected to equal expenses, and a deficit budget means expenses will exceed revenues.

To manage your monthly expenses, prepare for life's unpredictable events, and afford big-ticket items without going into debt, budgeting is essential. Keeping track of how much you earn and spend doesn't have to be drudgery, doesn't require you to be a math whiz, and doesn't mean you can't buy the things you want.

What it does mean is that you can maintain control over where your money goes and enjoy greater financial confidence and success.

How To Create a Budget

The specifics of budgeting will depend on your personal financial situation and goals. In most cases, though, the approach is the same no matter where you stand financially. Follow these seven steps to create your budget and adjust it as needed to reach specific financial goals.

• Add up all your income . This should include all income sources, such as a wages , salaries, tips, Social Security payments, disability, alimony, and investment income.
• Calculate your expenses . These are expenses you must pay each month, such as your mortgage or rent, food, transportation costs including gas, insurance premiums, taxes, childcare, internet service, your cell phone bill and other utility payments.
• Identify debt payments. Be sure to include your debt as well, such as loans and credit card payments. Determine the minimum payment for each debt. Subtract that from your income as well.
• Review your spending. Keep track of every dollar you spend, whether you pay with a credit card or cash, to determine what your real expenses are. Keep your receipts and note down additional spending that you hadn't budgeted for.
• Create a spending plan. The amount of income you have left is what you can spend on discretionary expenses. These can include additional debt payments or rainy day savings. Your plan should also include things like entertainment or surprise expenses. Give every dollar a job, based on your goals and what you discovered when you tracked your spending.
• Set financial goals. Do you want to save money? Pay off debt? Stop spending more than you have? Decide on realistic goals. Remember, you can adjust these over time. Work on the most pressing goals first, such as paying off debt or creating an emergency fund.
• Adjust each month. Each month, look at your spending and whether you progressed toward or achieved goals, Reevaluate and adjust where you assign your discretionary spending. A flexible budget will help you avoid overspending.

A budget can't work if you don't put it in writing. If you see it and commit to it, you'll have more incentive to stick to it.

Budgets are an integral part of running any business efficiently and effectively.

Budget Development Process

Corporate budgeting begins by establishing assumptions for the upcoming budget period. These assumptions are related to projected sales trends, cost trends, and the overall economic outlook of the market, industry, or  sector . Specific factors affecting potential expenses are addressed and monitored.

The budget is published in a packet that outlines the standards and procedures used to develop it, including the assumptions about the markets, key relationships with vendors that provide discounts, and explanations of how certain calculations were made.

The sales budget is often the first to be developed, as subsequent expense budgets cannot be established without knowing future cash flows . Budgets are developed for all the different subsidiaries, divisions, and departments within an organization. For a manufacturer, a separate budget is often developed for direct materials, labor, and overhead.

All budgets get rolled up into the master budget, which also includes budgeted financial statements , forecasts of cash inflows and outflows, and an overall financing plan. At a corporation, the top management reviews the budget and submits it for approval to the board of directors.

Static vs. Flexible Budgets

There are two major types of budgets: static budgets and flexible budgets. A static budget remains unchanged over the life of the budget. Regardless of changes that occur during the budgeting period, all accounts and figures originally calculated remain the same.

A flexible budget has a relational value to certain variables. The dollar amounts listed on a flexible budget change based on sales levels, production levels, or other external economic factors.

Both types of budgets are useful for management. A static budget evaluates the effectiveness of the original budgeting process, while a flexible budget provides deeper insight into business operations.

Advisor Insight

Derek Notman, CFP®, ChFC, CLU Intrepid Wealth Partners, LLC, Madison, WI

The importance of budgeting cannot be understated. A budget, also known as cash flow, is arguably more important than the actual cash that you have in your bank and investment accounts. Your cash flow is what allows you to pay for everything (or not).

Without knowing your cash flow, you could be putting yourself into a bad financial situation and not even know it. You can only get by without knowing your cash flow for so long before you get into financial trouble, so make the time to know the flow of your cash. Budgeting should be something that everyone does, regardless of their financial situation.

Individuals and families can have budgets, too. Creating and using a budget is not just for those who need to closely monitor their cash flows from month to month because money is tight. Almost everyone can benefit from budgeting—even people with large paychecks and plenty of money in the bank may find it difficult to cover the expense of an unexpected home repair .

Once you've created a budget, you may have to do some juggling, especially in the first few months. This means adjusting spending here and there so that you stay within your planned budget for income and expenses.

Budgeting is a wonderful tool for managing your finances , but many people think it's not for them. It's important to become aware of budgeting myths—the erroneous logic that stops people from keeping track of their money and allocating it in ways that benefit them most. Then, you can create a budget that can help you live within your means, reach important goals, and build lasting wealth.

11 Budgeting Myths That Can Block Your Success

1. i don't need to budget.

Getting and keeping a handle on your monthly income and expenses allows you to make sure that your hard-earned money is being put to its highest and best purpose. For those who enjoy an income that covers all bills with money left over, a budget can help maximize savings and investments .

If one's monthly expenses typically consume the lion's share of net income , any budget should focus on identifying and classifying all the expenses that occur during the month, quarter, and year. And for people whose cash flow is tight, the budget can be crucial to identifying expenses that could be reduced or cut, and minimizing any wasteful interest being paid on credit cards or other debt.

2. I'm Not Great at Math

Generally speaking, you don't need to be great at math to make and follow a budget. First of all, understanding general concepts relating to your income, spending, debt, saving, and allocating your funds are important. Then, the basic ability to add and subtract is most of what's called for. That's especially true if you're budgeting manually, with pencil and paper.

And now, thanks to budgeting software programs, math barely enters into it. You simply have to be able to follow instructions. Many of these programs are free and legitimate. Or, if you know how to use spreadsheet software, you can make your own ledger. It's as simple as creating one column for your income, another column for your expenses, and then keeping a running tab on the difference between the two.

3. My Job Is Secure

No one's job is truly safe. If you work for a corporation, being laid off due to a difficult economy, downsizing, or a takeover always is a possibility. If you work for a small company, it could die with its owner, be bought out, or just fold.

You should always be prepared for a job loss by having at least three months' worth of living expenses in the bank. It's easier to accumulate this financial cushion if you know the amount you're bringing in and spending each month, which can be monitored with a budget.

4. Unemployment Insurance Will Tide Me Over

Unemployment compensation is not a sure thing. Let's say a bad situation at work leaves you with no choice but to quit your job. Unless you can prove constructive discharge (that is, that you were virtually forced to resign), your departure will be considered voluntary, making you ineligible for unemployment insurance. Besides, the benefits may fall well short of the wages you're used to: in even the highest paying states, they average less than $500 per week.

5. I Don't Want To Deprive Myself

Budgeting is not synonymous with spending as little money as possible or making yourself feel guilty about every purchase. The aim of budgeting is to make sure you're able to spend on what's needed and save a little each month, ideally at least 10% of your income. At the very least, budgeting can make sure that you aren't spending more than you earn.

Unless you're on a very tight budget, you should be able to buy baseball tickets and go out to eat. Tracking your expenses does not change the amount of money you have available to spend every month. It just shows you where that money is going and allows you to make decisions about changing your spending habit.

6. I Don't Want Anything Big

If you don't have any major savings goals (e.g., upsizing your living situation, starting your own business), it's hard to drum up the motivation to stash away extra cash each month. However, your situation and your attitudes likely will change over time.

Let's say that you and your partner live in New York City in a small one-bedroom apartment and things are going fine for both of you until your family dynamic changes. For instance, you may have a child or an in-law who comes to stay with you indefinitely. This may mean you'll need (and want) more room to accommodate the new addition. If you don't save up for anything big, you may not be able to afford this change in your living situation down the road.

7. I Won't Qualify for Student Financial Aid

Yes, the catch-22 of student financial aid is that the more money you have, the less aid you'll be eligible for. That's enough to make anyone wonder if it isn't better to spend it all and have no savings in order to qualify for the maximum amount of grants and loans.

But that catch mainly applies to earned income . Whether you are an adult student going back to school or the parent of a student headed to college, the Free Application for Federal Student Aid (FAFSA) form (used for Stafford Loans , Perkins Loans , or Pell Grants ), does not require you to report the value of your primary residence (if you own a home) or the value of your retirement accounts.

So if you want to save money without compromising your financial aid eligibility, you can do so by using your savings to buy a house, prepay your mortgage , or contribute more money to your retirement accounts. The savings that you put into these assets can still be accessed if you face an emergency, but you won't be penalized for it.

Even if you employ all the available legal strategies to maximize your financial aid eligibility, you still won't always qualify for as much aid as you need. So it's not a bad idea to have your own source of funds to make up for any shortfall.

8. I'm Debt-Free

Good for you! But being debt-free without any savings won't pay your bills in an emergency. A zero balance can quickly become a negative balance if you don't have a safety net. Budgeting can help you create one.

9. I Always Get a Raise or Tax Refund

It's never a good idea to count on unpredictable sources of income. This may be the year that your company is unable to give you a raise (or as much of a raise as you hope for). The same is true of bonus money. Tax refunds are more reliable, but this depends in part on how good you are at calculating your own tax liability.

Some people know how to figure how much they'll get in a refund (or how much they will owe) as well as how to adjust this figure through changes in payroll withholding throughout the year. However, changes in tax deductions , IRS regulations, or other life events can mean a nasty surprise when you prepare your tax return.

10. I Just Don't Have the Discipline

If you're still not convinced that budgeting is for you, here's a way to protect yourself from your own spending habits. Set up an automatic transfer from your checking account to a savings account that you don't see regularly (i.e., at a different bank). Schedule the transfer to happen right after you get paid.

If you are saving for retirement, you may have the option of contributing a set amount regularly to a 401(k) or other retirement savings plan. This way, you can pay yourself first, have enough money for the transfer, and know that you can meet your savings goal. 

11. It's a Luxury When I Barely Have Enough for the Essentials

Sometimes budgeting just isn't a priority because you have too much on your plate. But there are certain government programs that can help you manage your household expenses. For instance, the Supplemental Nutrition Assistance Program (SNAP) helps recipients of all income levels work with their food budgets to make their benefits go further.

At the very least, set up that budget so you get a feel for spending limits, any change in how you originally planned to allocate your funds, whether you're paying all you can to get rid of debt, or whether your slipping too far into debt.

In general, traditional budgeting starts with tracking expenses, eliminating debt, and once the budget is balanced, building an emergency fund. But to speed up the process, you could start by building a partial emergency fund.

Emergency Fund

This emergency fund acts as a buffer as the rest of the budget is put in place and should replace the use of credit cards for emergency situations.

The key is to build the fund at regular intervals, consistently devoting a certain percentage of each paycheck toward it, and if possible, putting in whatever you can spare on top. This will get you to think about your spending, too.

You should only use your emergency fund for true emergencies. For instance, if you lose your job and need to pay for expenses, you could tap into your rainy day fund until you join the workforce again. You can also use this money if you have an unexpected medical emergency that arises.

You would save money if you used your emergency fund to eliminate credit card debt , but the purpose of the fund is to prevent you from having to use your credit card for paying for unexpected expenses. With a proper emergency fund, you will not need your credit card to keep you afloat when something goes wrong.

Downsize and Substitute

Once you have a buffer between you and high-interest debt, you can start the process of downsizing. The more space you can create between your expenses and your income, the more income you will have to pay down debt and invest.

This can be a process of substitution as much as elimination. For example, cancel any recurring subscriptions that you don't regularly use or need. Use half of the money you save to invest for a goal or to pay off outstanding debts. Save the other half to bulk up your emergency fund.

Although eliminating expenses entirely is the fastest way to a solid budget, substitution tends to have more lasting effects. So consider:

• Shopping with friends and family so you can split the cost, especially if you buy in bulk
• Carpooling or taking public transportation to cut down on car-related costs

People can sometimes cut too many expenses so that they end up with a budget that they can't keep to. Substitution, in contrast, keeps the basics while slimming down costs.

Find New Sources of Income

Once you have your budget in place and have more money coming in than going out, you can start investing to create more income.

It is better to have no debt before you begin investing. If you are young, however, the rewards of investing in  higher-risk, high-return securities like stocks can outweigh most low-interest debt over time.

Keep your receipts so that you know exactly how much you spend each month. This can help you determine how much to budget for any expenses that may change from month to month.

You've got your budget set up. Now you've got to stick to it. But that credit card still calls your name, your clothes budget seems awfully small, and you feel deprived. At such moments, it helps to revisit the whole reason for a budget—to help you manage your finances, achieve financial goals, and lead a life free from fear of financial pitfalls.

Remember the Big Picture

Your budget can keep you out of overwhelming debt and help you build a financial future that will give you more freedom, not less. So think about the future you want and remember that keeping to your budget will help you get there. Adding to your debt load , on the other hand, will mean that your financial future could be less bright.

Review Your Spending

Every time you enter your spending in your software or budget notebook, review everything that's been spent to date, and compare it to income received. This will keep you abreast of where things stand and encourage you to keep at it, especially if you are reining in your spending as intended. This daily or weekly activity can give you an enormous sense of accomplishment and keep you on track.

Remove the Options That Allow You To Cheat

Make it more difficult to make impulse purchases. In other words, set up barriers that give you time to think: "Is this purchase necessary?" Opt out of retailer email lists. Remove your stored payment information on your favorite online shops so you can't just click to order. Adjust your phone settings to block tracking and advertising as much as possible.

Find Some Support

If you feel like you're the only one in your group who is on a budget, search for some like-minded folks. You could find an online forum, a monthly meeting, or even a couple of friends who'll listen to your concerns and share their budgeting experiences. Set up accountability calls with your frugal buddies to talk things over and keep temptation at bay.

Just know that you're not the only person setting sensible financial limits for yourself.

Go Old School

There's something powerful about handing over a stack of $20 bills for a purchase. You have to confront the money you're about to spend and accept that the spending is worth it. Swiping a debit card , on the other hand, may not feel nearly as real. 

Similarly, paying bills by writing checks and promptly entering the sums in your register keeps you up-to-date on how your account is affected in a way that autopay doesn't.

You don't have to use cash exclusively or completely forgo online payments. But handling transactions in hands-on ways can make you realize how much you're spending and enhance the power of self-regulation.

Reward Yourself

If you constantly look at what you have to give up, the very act of budgeting becomes distasteful. A mixture of long- and short-term gifts to yourself will help keep you motivated.

When you've been faithful to your budget for a month, give yourself a reward. Even small ones such as a night out with friends, a concert, or a little extra cash for spending can help.

Keep visual reminders of these rewards or the things you're saving up for. Start building associations in your brain that make sticking to your budget an enjoyable activity with happy results.

Schedule a Periodic Budget Evaluation

It's difficult to predict correctly how much money you'll need in every category of your budget. For instance, a new job may necessitate a wardrobe change and your existing clothing budget may not cut it. That's why it's important to conduct a regular check on how well your budget is working. It may need tweaking. This is to be expected. Just make sure that you always keep your long-term financial goals in the picture.

Educate Yourself

Learn all you can about finances, money management , and how you can best invest in yourself. Talk to your financially savvy friends and seek out real-world tips and advice from people who are doing well with their money.

The more you learn about handling money wisely and the rewards that can result from such an effort, the more concrete and acceptable the reasons for budgeting will be.

Ways To Budget When You're Broke

Budgeting is smart, but if you're suffering from mounting bills and a lack of funds, it may not be where your focus is. In such circumstances, consider some additional steps that you can take to gain control of your finances.

1. Avoid Immediate Disaster

Don't be afraid to request bill extensions or payment plans from creditors. Skipping or delaying payments only worsens your debt. And late fees ding your credit score. 

2. Prioritize Bills

Go over all your bills to see what can and should be paid first, prioritize those that are late, and then set up a payment schedule based on your paydays.

Call the bill companies to see how much you can pay now to get back on track toward a positive status. Explain that you are taking strict measures to catch up. Be forthright about the amount you can afford to pay now. Don't just promise to pay the full amount later.

3. Ignore the 10% Savings Rule

Stashing 10% of your income into your savings account is daunting or impossible when you're living paycheck to paycheck. It doesn't make sense to have $100 in a savings plan if you are fending off debt collectors . Your savings can wait until you can reclaim financial stability.

4. Face Your Spending

To fix your finances, you need to get a handle on your outlay first. Online banking and online budgeting software can help you categorize spending so you can make adjustments. Many people find that, just by looking at aggregate figures for discretionary expenses , they are spurred to reduce excessive spending.

5. Eliminate Unnecessary Expenses

Hopefully, your budget has given you a sense of where your money goes. Now it's time to tighten up. Start cutting back on items that you wouldn't miss. Change habits that are costing you, like letting food spoil before you can eat it. Prepare meals at home instead of going to restaurants or getting takeout.

You may be able to reduce some expenses that you shouldn't drop. For example, you might cut your auto insurance premium by switching carriers.

6. Negotiate Credit Card Interest Rates

Those ultra-high interest rates on your credit cards aren't fixed in stone. Call the card company and ask for a reduction in the annual percentage rates (APR) . If you have a good payment record, your request might be approved. This won't lower your outstanding balance, but it will keep it from mushrooming as fast.

7. Track Your Spending

Once you've gone through these steps, monitor your progress for a few months. You can do this by writing everything you spend in a notebook, with budgeting apps on your phone, or with the software you may already use for your budget.

Ensure that every cent is accounted for. Fine-tune and adjust your spending as needed after each month. This not only can help get you out of financial trouble. It also can put the spotlight back on the importance of your budget.

8. Seek New Income

For the time being, saving and investing is out. But consider ways to increase your earnings: working overtime, getting a second job, or picking up some freelance work.

How Do You Create a Budget?

Creating a budget takes some work. You'll need to calculate every type of income you receive each month. Next, track your spending and tabulate all your monthly expenses, including your rent or mortgage, utility payments, debt, transportation costs, food, miscellaneous spending, and more. You may have to make some adjustments initially to stay within your budget. But once you've gone through the first few months, it should become easier to stick to it.

What Is the 50-20-30 Budget Rule?

The 50-20-30 budget rule was popularized by Sen. Elizabeth Warren (D-Mass.) in her book All Your Worth: The Ultimate Lifetime Money Plan. The plan entails dividing all of your after-tax income into 50% for your actual needs, 30% for anything you want, and 20% for savings.

How Does Budgeting Help a Business?

Just like budgets help people, corporate budgeting helps businesses stay on top of their finances. They also help business leaders make very important investment decisions, manage and meet goals and objectives, and identify any financial hurdles that come their way.

A budget often conjures up images of complicated financial documents. But in reality, it's a money management tool that can be used by various entities, including governments, businesses, and individuals/households of every income level. Budgets can help prepare you to make better decisions about your money so that you can secure a brighter financial future.

Forbes Advisor. " The States With The Best And Worst Unemployment Benefits—And Why They’re So Different. "

Federal Student Aid, U.S. Department of Education." 7 Things You Need Before Filling Out the 2022-23 FAFSA Form ."

USA.gov. " Government Benefits ."

FiftyThirtyTwenty.com. " Income + Financial Stability in America ."

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Biden Looks to Raise Tax Revenue When Trump Cuts Expire Next Year

Lael Brainard, the director of the National Economic Council, said lawmakers should raise taxes on companies and the wealthiest while extending the 2017 cuts for those making less than $400,000.

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By Jim Tankersley

Jim Tankersley covers economic policy in Washington.

President Biden’s top economic adviser said on Friday that lawmakers should take advantage of a looming tax debate next year to try to reduce budget deficits by sharply raising taxes on corporations and the rich.

Under that plan, Mr. Biden would more than offset the cost of maintaining tax cuts for people earning $400,000 a year or less.

In a speech to the Hamilton Project at the Brookings Institution in Washington, Lael Brainard, who directs the White House National Economic Council, gave the most detailed explanation yet of how Mr. Biden would seek to shape what promises to be a multitrillion-dollar tax debate.

A batch of tax cuts signed into law in 2017 by President Donald J. Trump, who is facing Mr. Biden in a rematch this fall, is set to expire at the end of next year. It includes cuts for individuals at all income levels. Republicans built that expiration into the tax bill to reduce its projected cost to deficits and comply with congressional rules.

Ms. Brainard’s speech renewed Mr. Biden’s commitment to reducing taxes for middle-class Americans and for raising them on high earners. But her remarks expressed more concern about growing debt and deficits than the president and his aides had previously demonstrated when discussing the looming tax debate.

“At minimum, we should avoid making the fiscal hole created by Republican tax cuts deeper, by fully paying for any tax cuts that are extended,” Ms. Brainard said, in remarks released by the White House. “And we should use the 2025 tax debate as an opportunity to meet our national needs by raising revenue overall by asking the wealthy and large corporations to pay their fair share.”

The comments reflect a growing effort by Democrats and Republicans to set the terms of what promises to be a major tax debate next year.

Mr. Trump and his congressional allies have sought to extend all of the expiring cuts, a move that the nonpartisan Congressional Budget Office said this week could add as much as $4.6 trillion to the federal debt over a decade.

Mr. Biden has said repeatedly that he wants to extend only the individual cuts for households earning less than $400,000 a year. He would allow other cuts to expire. The Committee for a Responsible Federal Budget in Washington, a group dedicated to reducing deficits and the nation’s growing debt load, calculates that Mr. Biden’s extension of those provisions would most likely cost $1.5 trillion to $2.5 trillion over a decade, but possibly as much as $4 trillion, depending on which provisions the president chooses to extend.

Mr. Biden’s latest budget proposes nearly $5 trillion in tax increases on high earners and corporations. It also includes about $2 trillion in new spending programs.

In her speech, Ms. Brainard reiterated Mr. Biden’s calls for higher taxes on the wealthy and large corporations, including an increase in the corporate tax rate to 28 percent. That would be higher than the 21 percent that Mr. Trump’s law, the Tax Cuts and Jobs Act, ushered in but lower than the 35 percent rate that existed before the 2017 tax package passed.

She also appeared to suggest that Mr. Biden would seek to maintain some limits on tax deductions for households earning more than $400,000 a year, including those that were set to expire at the end of next year. Most notably, that could include maintaining a $10,000-a-year limit on the amount of state and local taxes that higher earners could deduct from their federal income taxes, which has been a hot-button issue in higher-tax and predominantly blue states like New York and California.

“Achieving a fairer tax system also means we cannot extend expiring T.C.J.A. tax cuts for those with incomes above $400,000 or bring back deductions and other tax breaks for these households,” she said, referring to the 2017 law. “As the president has said, tax cuts for the wealthy will stay expired on his watch.”

Ms. Brainard also called for additional tax assistance for some lower- and middle-income Americans, by restoring an enhanced child tax credit that Mr. Biden signed into law on a temporary basis in 2021. That credit increased assistance for parents and helped cut child poverty sharply in the year it was enacted, but Democrats did not extend it for 2022 or beyond. She also called for making permanent an enhanced tax credit to help people buy health insurance through the Affordable Care Act.

Jim Tankersley writes about economic policy at the White House and how it affects the country and the world. He has covered the topic for more than a dozen years in Washington, with a focus on the middle class. More about Jim Tankersley

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President Biden and Donald Trump have agreed to two debates  on June 27 on CNN and Sept. 10 on ABC News, raising the likelihood of the earliest general-election debate  in modern history.

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