How to Build and Review a Monthly Budget for Your Small Business

Running a small business requires more than just passion, it takes consistent financial oversight. One of the most effective tools for staying in control of your finances is a monthly budget. When done right, budgeting allows you to plan, make informed decisions, and pivot quickly when needed.

Here’s how small business owners can build a budget based on their activity and use monthly reviews to stay on track. As an example, we’ll use me as an accounting firm owner with fake numbers.

1.      Start with Your Revenue Projections

Begin by estimating how much income you expect to generate for the month. This should be based on recent sales trends, seasonal fluctuations, and any expected changes (like a new marketing campaign or product launch).

If your revenue varies significantly month to month, take a conservative approach. For me, if we were in the months February-April, my revenue will be a lot more as those are my tax return busy months. Let’s assume we are in the month of March, and I plan to only do business returns. Using fake numbers, lets say I will complete 50 returns at an average of $400 per return, as well as have 3 bookkeeping clients at an average of $250 per month.

For your business, you’ll use some equivalent like average ticket price, average service call revenue and average number of patrons or widgets sold. See my hypothetical revenue below:

2.      Identify Fixed and Variable Expenses

Separate your expenses into two categories:

• Fixed Expenses: These are recurring monthly costs like rent, insurance, software licenses and salaries.

• Variable Expenses: These fluctuate with activity levels, such as inventory purchases, shipping, cost per use software, and utilities.

You can use any measure to determine your variable cost. Mine is the amount of deliverables. In this case, tax returns and bookkeeping reports.

If I had employees, I would also be using the average number of employee hours for each deliverable, and multiplying that by their wage to get my payroll expense. Other service firms like landscaping, HVAC or construction can use that model and estimate the total number of hours for each service cost to estimate their payroll. See below for my hypothetical expense budget for my accounting firm:

Knowing the difference helps you understand what costs are within your control and which ones you must plan around. You don’t have to make your budget a super complex sheet that only finance heads can understand, it can basically be a simple calculation, just like mine is above.

3.      Allocate for Savings and Emergencies

Build a cushion into your budget for savings or unexpected costs. Even a modest amount each month can create valuable financial resilience over time.

4.      Match Budget to Business Activity

Your budget should reflect your business operations. For example, if you expect higher sales in December, plan for increased staffing, marketing, or inventory needs. A good budget aligns with your activity, not just historical numbers.

5.      Track Actuals

Throughout the month, use accounting software or spreadsheets to log real-time revenue and expenses. Staying current allows for more accurate comparisons and helps you catch issues early.

6.      Conduct a Monthly Review

At the end of each month, compare your actual income and expenses to your budget:

• Where did you exceed or fall short?

• Were the variances due to controllable factors or unexpected events?

• What can you adjust next month to improve accuracy or performance?

This review process turns your budget from a static document into a dynamic management tool.

7.      Use Insights to Improve Forecasting

Over time, regular budget reviews help you spot patterns and improve your forecasting. This leads to more confident planning, smarter spending, and better financial health for your business.

Conclusion

A monthly budget isn’t just about keeping the books balanced. It’s a vital part of running a successful business. By basing your budget on actual activity and regularly reviewing it, you gain a clearer picture of your finances and position yourself to make proactive, informed decisions every month.