Small business budget example for the first three months

A small business budget becomes useful when you can explain why the money in the bank differs from the amount you expected. For a new service business, one late customer payment and one higher supplier bill can change the next month's spending decision. This worked example follows that change through the first three months.

All amounts are invented, expressed in USD, and used only to explain the calculation. They are not market prices or recommended spending limits. The example covers business cash before taxes, financing and owner withdrawals. Add those items, with locally appropriate advice where needed, before applying the calculation to your own situation.

All figures exclude sales taxes such as VAT and any income tax.

Set the boundary before entering numbers

Our fictional business provides small website maintenance jobs. The owner already has a suitable computer, works from home and starts with 4,000 in business cash. Household savings remain outside this amount. Each completed job brings a planned payment of 500 and requires 100 of outside support, paid in the same month.

The owner plans four jobs in month one, six in month two and eight in month three. These are assumptions, not booked sales. A job needs five owner hours, so delivery takes 20, 30 and 40 hours respectively. Sales, administration and revisions need additional time. Check that your own schedule can accommodate both before accepting a sales target.

This is a cash budget for the launch period. Keep a separate record of invoices and accounting profit. Equipment purchases, payment delays and owner withdrawals can affect cash differently from the profit shown in your accounts.

Write down the starting commitments

Launch purchases total 1,000: 700 for a basic website and 300 for a software setup. Monthly commitments are 250 for software, 150 for insurance and administration, and 200 for a marketing test. Together they total 600 each month. These categories are illustrative and intentionally simple.

Record the supplier, payment date and cancellation terms beside every amount. A yearly subscription paid upfront belongs in the month of payment for this cash calculation. Splitting it into twelve equal cash payments would overstate money available early on.

Keep one-time costs separate from recurring costs. Put the 100 of support per job on its own line because that payment changes with the amount of work. This makes later differences easier to explain.

Build the original three-month cash budget

The starting plan assumes customers pay in the month their jobs are completed. The launch purchases happen in month one. There are no further cash contributions, loans or withdrawals in the table.

Each opening balance carries forward the previous closing balance. Check this connection whenever you change a receipt or payment date.

Closing cash = opening cash + customer payments received - cash paid out.

Month one closes at 4,000 + 2,000 - 2,000 = 4,000. Month two closes at 4,000 + 3,000 - 1,200 = 5,800. Month three closes at 5,800 + 4,000 - 1,400 = 8,400. The quarter also reconciles: 4,000 + 9,000 - 4,600 = 8,400.

Compare month one with what actually happened

Suppose the business completes all four planned jobs. Three customers pay 500 each, while the fourth pays in month two. Support costs 120 per job rather than the assumed 100. All other spending matches the original plan.

Actual closing cash is 4,000 + 1,500 - 2,080 = 3,420. The 580 shortfall has two causes: 500 has not yet been collected and 80 was spent above plan. An expense variance of +80 is unfavorable here; a positive sign does not automatically mean a good result.

Keep the unpaid 500 in an invoice list with its due date. Record the receipt only when the customer pays. Counting both the issued invoice and the later payment as cash income would double-count one sale.

Preserve the budget and revise the forecast

Keep the original budget visible. Add a separate forecast column that uses the latest evidence. Business.gov.au distinguishes budgets from forecasts: forecasts reflect current information.

For this example, six and eight jobs remain feasible in months two and three. The delayed 500 is expected in month two, and support now costs 120 per job. The owner also reduces the marketing test from 200 to 100 monthly, lowering commitments from 600 to 500. That saving assumes the reduction does not change the job forecast; verify this dependency in your own plan.

Month two closes at 3,420 + 3,000 + 500 - 720 - 500 = 5,700. Month three closes at 5,700 + 4,000 - 960 - 500 = 8,240.

Across the quarter, support costs 360 more than planned: 18 jobs × 20. Cutting marketing saves 200. The revised final balance is therefore 8,400 - 360 + 200 = 8,240. The late invoice changes timing but not the quarter's total receipts if it is collected as assumed.

Test the payment assumption before committing cash

Move that delayed payment out of month two and leave every other assumption unchanged. Closing cash falls to 5,200 in month two. If the invoice also remains unpaid through month three, that month closes at 7,740. Do not fund an irreversible purchase with money whose receipt date is uncertain.

Monthly totals can also hide a temporary shortage. Add weekly payment dates when major bills fall before customer receipts. A positive month-end balance gives no guarantee that the account stays positive on every earlier day. The government's cash flow guidance explains opening and closing balances.

Use the review to make one spending decision

For this fictional owner, the immediate decision is to reduce the marketing test and postpone optional purchases until the delayed invoice clears. The owner keeps delivery spending funded and checks whether the smaller test affects new enquiries. If fewer jobs become likely, the next forecast must use that lower volume.

Your cash buffer and risk budget depend on your circumstances. The 3,420 balance in this example is not a universal safe level. Owner living costs and tax payments remain excluded, so it cannot establish how long this person can live from the business.

Repeat the same check each month

Save the original plan, reconcile actual receipts and payments to bank records, explain each material difference, then update future months. Give each changed assumption an owner and a next review date. Keep monthly burn visible alongside upcoming payment commitments.

For your next step, replace the example's job count, payment dates and supplier amounts with your own evidence. Calculate the closing balances again and check that each becomes the next opening balance. A budget you can reconcile gives you a concrete basis for the next spending decision.

Related glossary terms

• One-time costs
• Recurring costs
• Monthly burn
• Cash buffer
• Risk budget

See also

• Startup costs for freelance web design
• Startup costs for a virtual assistant