A business budget is a plan for how a business expects to earn and spend money over a period of time. It helps entrepreneurs make smart choices before problems become expensive. Even a small student-run business, like selling snacks or designing stickers, needs a budget to track sales, costs, and profit.
Budgeting matters because it connects business ideas to real numbers.
Key Facts
- Profit = Revenue - Expenses
- Revenue = Price per unit x Number of units sold
- Total cost = Fixed costs + Variable costs
- Break-even units = Fixed costs ÷ (Price per unit - Variable cost per unit)
- Budget surplus means planned revenue is greater than planned expenses.
- A cash flow budget tracks when money comes in and when money goes out.
Vocabulary
- Budget
- A budget is a plan that estimates income and expenses for a specific time period.
- Revenue
- Revenue is the total money a business earns from selling goods or services before subtracting costs.
- Expense
- An expense is money a business spends to operate, make products, or provide services.
- Profit
- Profit is the money left after a business subtracts all expenses from revenue.
- Break-even point
- The break-even point is the number of units a business must sell so revenue equals total costs.
Common Mistakes to Avoid
- Counting revenue as profit: This is wrong because a business must subtract expenses before knowing how much money it actually keeps.
- Forgetting small expenses: This is wrong because supplies, fees, packaging, and payment app charges can add up and change the budget.
- Ignoring fixed costs: This is wrong because costs like rent, website fees, or equipment must be paid even if few products are sold.
- Making a budget once and never updating it: This is wrong because prices, sales, and costs change, so the budget should be checked regularly.
Practice Questions
- 1 A student business sells bracelets for $8 each and sells 45 bracelets in one week. What is the weekly revenue?
- 2 A lemonade stand has fixed costs of 2, and has a variable cost of $0.50 per cup. How many cups must it sell to break even?
- 3 A business has strong sales but often runs out of cash before paying suppliers. Explain how a cash flow budget could help solve this problem.