In some sense, everyone is a small business owner.

That’s because keeping a household operating in the black requires many of the same skills necessary for running a business. That overlap can be a huge positive for new entrepreneurs, as they can draw on the skills they’ve cultivated while dealing with their own household finances.

In both the home and office setting, budgeting is an essential task. Yet while almost all of us have some experience with tracking our saving and spending in the domestic sphere, many new entrepreneurs aren’t overly familiar with the differences between personal and business budgeting.

So, let’s take a closer look.

Personal spending plans vs business budgets

I try to avoid using the term “budget” when discussing personal finance, as I think it has something of a negative connotation in this context. People often view personal budgeting as something that’s onerous or unpleasant, so I prefer the more positive (and equally accurate) term spending plan.

Your personal spending plan and your business budget share a lot of the same characteristics. Ultimately, both boil down to projecting and tracking your income and expenses.

The core steps to take when creating a personal spending plan are:

  • Establish your objectives (financial, lifestyle, etc.)
  • List all of your income sources (wages, investments, spousal support etc.)
  • Identify and list all expense categories (housing, auto, groceries, etc), broken into fixed vs. variable
  • Assign amounts to each spending category
  • Allocate savings
  • Account for fluctuations or one-time events
  • Track your progress and make adjustments if necessary

Those elements should be the foundation of your personal spending plan. As long as you make an effort to be rigorously accurate, a good plan is an integral part of your financial strategy.

The basics of business budgets

Business budgeting works from the same basic principles, with a few added wrinkles. Accurate business budgets are absolutely essential, as they help you ensure your business has enough revenue to remain viable while also giving you an in-depth window into how your enterprise is performing.

Basic business budgets should include the following:

  • Your sales and revenue
  • Fixed costs (such as rent) and variable costs (raw materials that vary in price)
  • Debt service
  • Account for fluctuations or one-time events
  • Track your progress and make adjustments if necessary

The above list is similar in many ways to the steps for creating a personal spending plan. Often business budgets are prepared annually. For a new business especially, it is a good idea to be looking at your financial activity on a regular basis. This includes your P&L, Balance Sheet, Statement of Cash Flow and your budget. Be aware that business budgets don’t have to be exceedingly complicated or intimidating. Most small business owners are more than capable of creating and tracking their own business budget with the help of modern software.

The takeaway

Personal spending plans and business budgets serve much the same purpose, but have some key differences of which to be aware. By keeping detailed and accurate plans and budgets, you’ll be in the best possible position for success at home and work!

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