How to Set Your Budget and Financial Forecasts for Your Business
Running a business without a budget is like trying to cross the Channel in a kayak with no paddle. You might get somewhere, but it won’t be where you planned. A budget and financial forecast aren’t just admin—they’re the closest thing you’ll get to a compass in business.
Plenty of businesses never make it past their first few years. The Office for National Statistics shows that only around 40 percent of startups survive beyond five years. That’s not because their ideas were bad or their founders lazy. It’s often because they couldn’t keep their finances steady enough to get through the early storms.
Let’s cut through the fluff and talk plainly about how to build a startup budget and make a financial forecast that actually helps you run your business better.
Why Budgets Matter More Than You Think
Most people imagine a budget as a set of numbers handed down from finance, designed to stop them spending money. In a small business, it’s more personal than that. A budget is how you take your ambitions and turn them into something manageable. It tells you whether your plans are affordable and how close you are to making a profit—or not.
It’s not there to make you feel good or to impress the bank. It’s there to help you make decisions, early and often.
Start by Listing What You Know
Begin with what’s certain. Your fixed costs. That’s things like rent, insurance, broadband, payroll. Write them down. Then your variable costs—the things that change depending on how much you sell. Raw materials, packaging, postage, advertising.
If you’ve got some trading history, dig into last year’s figures. If you’re new, look at industry benchmarks or ask suppliers for quotes. The British Business Bank and Start Up Loans scheme both offer practical guides and templates to get this bit right.
Include the annoying stuff—tax, accountant fees, software licences, kit that might break, and so on. This is where businesses usually trip up: by forgetting the “every now and then” expenses that still need to be paid on time.
Now Guess—But Do It Intelligently
Once you know what’s going out, turn to what might be coming in. Revenue forecasts are rarely precise. That’s fine. They aren’t meant to be. They’re educated guesses, and they should err on the side of caution.
Start with your pricing. Then ask: how many customers might realistically buy from me next month? And the month after that? Avoid wishful thinking. If your industry typically has quiet summers, assume yours will too. If you’re launching in January, don’t expect Christmas-level sales.
Use publicly available data where you can. The British Retail Consortium, for example, tracks trends in consumer spending. The Office for Budget Responsibility regularly publishes forecasts that can hint at where the wider economy is heading. These don’t give you your answer, but they help you make better guesses.
Build the Forecast
With income and outgoings roughly mapped out, build a forecast. This should run month-by-month for at least the next year. Use it to track:
Sales
Total income
Fixed and variable costs
Net profit or loss
Cash in hand
Excel works perfectly well. So do simple tools like Google Sheets. If your setup is more complex—or you want to automate—accounting software like FreeAgent, Sage or QuickBooks can do the job. They’re especially useful for tracking real vs forecast in real time.
One smart idea is to run three versions: a worst-case, expected, and best-case scenario. That way, you’re not blindsided when things swing one way or the other.
Use It, Don’t File It
A budget is only helpful if you use it. Set a reminder once a month to compare your forecast with what actually happened. Where did you overspend? Where did you bring in less than expected? Are there any gaps opening up? Plug them now—not in three months.
If you’ve got a team, share the numbers. You don’t need to expose every detail of the balance sheet, but being open about targets and limits gives people clarity. It also helps build a culture of ownership.
Too many businesses build a budget in January and don’t look at it again until December. At that point, you might as well not have bothered.
Build Slack into the System
One of the more valuable tricks is to plan for when things go wrong. Because they will. Clients delay payments. Orders dry up. A tax bill lands heavier than expected. So create a buffer. Even a small one. An emergency fund that covers a month of costs can buy you breathing room when the unexpected happens.
On the other hand, sometimes good things happen—orders flood in, you get unexpected press, or a big client signs up. That’s brilliant. But growth without preparation can be just as damaging. Know in advance what you'd do if you suddenly had to scale up. Do you have the staff? The cash flow? The stock?
Know When You Need a Grown-Up
Finally, get advice when you need it. A good accountant is worth more than their fee. And if that’s out of reach, there are still options. Local enterprise partnerships, Growth Hubs, and organisations like the Prince’s Trust or the Institute of Chartered Accountants in England and Wales all offer support, tools, and sometimes even free mentoring.
Money might not be the most exciting part of running a business. But if you take it seriously—if you treat budgeting and forecasting not as chores, but as tools—it can make all the difference between surviving and growing.
