The short answer
- A business budget forecast answers one question: over the next twelve months, will what I sell cover what I spend, and how much will be left for me?
- It has five parts: sales assumptions, variable cost per unit, fixed costs, start-up costs, and profit. For a small shop or side business, an hour is enough for a first version.
- Build revenue from units × average price. Never start from a round revenue figure you would like to reach.
- The US Small Business Administration (SBA) suggests monthly or quarterly projections for the first year, and a break-even calculation: fixed costs ÷ (price − variable cost per unit).
- Always run a second scenario with sales 30% lower. If the business only works when everything goes right, find out before you buy stock.
Budget forecast, cash flow forecast, business plan
People use these words loosely, so here is how they fit together.
| Document | Question it answers | Typical horizon |
|---|---|---|
| Start-up budget | What do I need to pay for before the first sale, and where does that money come from? | Before launch |
| Budget forecast (projected profit and loss) | Does the business make money over the year? | 12 months, by month or quarter |
| Cash flow forecast | Will there be enough money in the account each month? | 12 months, month by month |
| Business plan | The full story, for a lender or investor | Usually several years |
Start-up budget
Question it answersWhat do I need to pay for before the first sale, and where does that money come from?
Typical horizonBefore launch
Budget forecast (projected profit and loss)
Question it answersDoes the business make money over the year?
Typical horizon12 months, by month or quarter
Cash flow forecast
Question it answersWill there be enough money in the account each month?
Typical horizon12 months, month by month
Business plan
Question it answersThe full story, for a lender or investor
Typical horizonUsually several years
The SBA’s business plan guidance asks for a multi-year outlook, but for the first year it recommends quarterly or even monthly projections. That first-year budget is what this guide builds. The month-by-month timing of money in and out is a separate exercise, covered in our cash flow forecast guide.
If you are testing whether an idea can stand on its own, the one-page budget is enough. If you later apply for a loan, it becomes the base of everything else.
The example: Marcus and his hot sauce
Marcus makes hot sauce in a rented commercial kitchen in Ohio and sells it at farmers markets and through a small online shop. It is a side business next to his day job. Every figure below is an example: replace it with yours.
- 1Sales (15 min)Average price, then units per month, quarter by quarter, with the busy and quiet seasons.
- 2Variable costs (15 min)Everything that goes up with each sale: ingredients, packaging, card and platform fees, shipping supplies.
- 3Fixed costs (15 min)Everything you pay even in a month with no sales: kitchen rental, market fees, insurance, permits, website.
- 4Start-up costs (5 min)Equipment and first stock, and the money that pays for them.
- 5Profit and a cautious scenario (10 min)What is left at the end of the year, the break-even point, and the same sums with 30% fewer sales.
Step 1: sales assumptions
Revenue is an output, not an input. Marcus starts from two numbers:
- Average price: $9 per bottle (between his $8 single bottles and his three-pack at $30, based on his first markets).
- Units per month, quarter by quarter: 80 bottles a month in January to March, 150 in spring, 200 in summer when markets are busiest, and 170 in the holiday quarter.
Over the year: 3 × (80 + 150 + 200 + 170) = 1,800 bottles, or 1,800 × $9 = $16,200 in sales.
Where should those volumes come from? Evidence, not hope: what you sold at a test market, how many pre-orders a post brought in, what a similar stall sells. Write the reason next to each number. "200 a month in summer, because I sold 52 on one Saturday in July" is an assumption you can check later; "200" is a wish. If you have not sold anything yet, our list of small business ideas includes a way to run a cheap test first.
Step 2: variable cost per unit
Variable costs move with every sale. For one bottle:
| Variable cost | Per bottle |
|---|---|
| Peppers, vinegar, spices | $1.60 |
| Bottle, cap and label | $1.10 |
| Card and platform fees (about 3% in this example) | $0.27 |
| Shipping supplies, averaged across market and online sales | $0.23 |
| Total | $3.20 |
Peppers, vinegar, spices
Per bottle$1.60
Bottle, cap and label
Per bottle$1.10
Card and platform fees (about 3% in this example)
Per bottle$0.27
Shipping supplies, averaged across market and online sales
Per bottle$0.23
Total
Per bottle$3.20
- Variable costs36 %$3.20Ingredients, packaging, fees
- Contribution margin64 %$5.80Pays the fixed costs, then Marcus
Every bottle sold leaves $5.80 to pay the fixed costs and, once those are covered, Marcus. If you are unsure how to work out your own unit cost, especially for something you make or a service you sell, our guide to cost price walks through it.
Step 3: fixed costs
Fixed costs arrive whether or not you sell. The SBA defines them as costs that do not change with production or sales over a given period, and it flags a third type worth separating: semi-variable costs such as phone, repairs and fuel, which have a fixed part and a part that grows with activity.
| Fixed cost | Per year |
|---|---|
| Commercial kitchen rental (8 hours a month at $25) | $2,400 |
| Market stall fees (30 markets at $40) | $1,200 |
| Product liability insurance | $400 |
| Licences and permits (varies a lot by state and county) | $150 |
| Website and online shop plan | $300 |
| Total | $4,450 |
Commercial kitchen rental (8 hours a month at $25)
Per year$2,400
Market stall fees (30 markets at $40)
Per year$1,200
Product liability insurance
Per year$400
Licences and permits (varies a lot by state and county)
Per year$150
Website and online shop plan
Per year$300
Total
Per year$4,450
The usual gaps: insurance, bank and card-reader fees, software subscriptions, mileage to markets, and tax set aside "later". Check your local licensing rules before you put a number on permits: food businesses in particular often need an inspection or a specific licence.
Step 4: start-up costs
These leave your pocket before the first sale: $800 of equipment (a large pot, a blender, a scale, a bottle filler) and $200 for label design. Marcus pays for them from $1,500 of savings, which leaves a $500 buffer. Keep them in a separate box: they belong to the start-up budget and the cash flow forecast. The SBA notes that many one-time start-up costs are deductible; a tax preparer can tell you how that applies to you.
Step 5: profit, break-even and the cautious scenario
Here is Marcus’s first-year budget forecast:
| Line | Base case | Sales −30% |
|---|---|---|
| Bottles sold | 1,800 | 1,260 |
| Sales | $16,200 | $11,340 |
| − Variable costs ($3.20 a bottle) | $5,760 | $4,032 |
| − Fixed costs | $4,450 | $4,450 |
| = Profit before tax | $5,990 | $2,858 |
| Per month | $499.17 | $238.17 |
Bottles sold
Base case1,800
Sales −30%1,260
Sales
Base case$16,200
Sales −30%$11,340
− Variable costs ($3.20 a bottle)
Base case$5,760
Sales −30%$4,032
− Fixed costs
Base case$4,450
Sales −30%$4,450
= Profit before tax
Base case$5,990
Sales −30%$2,858
Per month
Base case$499.17
Sales −30%$238.17
What the table tells him:
- Break-even point. $4,450 ÷ $5.80 = 767.2, so 768 bottles a year. Below that, the business loses money. Above it, each bottle adds $5.80.
- The volume he needs to reach his goal. Marcus wants the side business to add $8,000 a year: ($4,450 + $8,000) ÷ $5.80 = 2,146.6, so 2,147 bottles. His base case (1,800) falls short. He now knows the lever: a higher average price (more three-packs), a wholesale account with a local store, or a slower target in year one.
- The cautious case still makes money. A slow start would not put him in trouble, as long as he keeps his fixed costs where they are.
Tax is not in the table yet. "Profit before tax" is exactly that. In the US, self-employed people pay self-employment tax of 15.3% (Social Security and Medicare) once net earnings from self-employment reach $400, on top of income tax, and the IRS generally expects quarterly estimated payments if you expect to owe $1,000 or more. Put a line in your budget for money set aside, and ask a tax preparer what share fits your situation. In the UK, the first £1,000 of gross trading income each tax year is covered by the trading allowance; above that you must register for Self Assessment.
Keep the budget alive once you start selling
A forecast you never reread is only useful once. The habit that makes it pay is a monthly comparison, line by line: units sold, average price achieved, variable cost per unit, fixed costs. Every gap points at one assumption that was wrong, and tells you what to fix.
That comparison needs one thing: business money recorded apart from personal money, in the same categories as your budget. Our guide to separating personal and business records shows how. If your real margin drifts away from the forecast, see how to calculate profit margin to find where it goes.
In Binome360 you can keep a separate assistant for the business, with your budget categories. You type or say a sale or an expense in one sentence, the app prepares the record, and nothing is saved until you confirm.
Saturday market: sold 46 bottles, $402 total, $250 cash and the rest on card. Stall fee $40 cash.
Ready in your "Hot sauce" assistant: $402 in sales ($250 to Cash box, $152 to Card account), 46 bottles out of stock, and a $40 expense under "Market fees" paid from Cash box. Save it?
Kitchen rental and the website plan can be set up once as recurring expenses.
Try Binome360 for freeA separate assistant for the business, your budget categories, and your products with their cost and selling price.
- Sales and expenses recorded in one sentence, typed or spoken
- Per-category budgets and monthly totals, in any currency
- Fixed costs saved once as recurring items
- Products, stock movements and margins in the Shop module
- A monthly reminder to compare forecast and actuals
Binome360 does not connect to your bank or card reader: you record amounts yourself, or photograph a receipt and the amount is proposed for you to confirm. It does not forecast for you. It keeps your actual numbers current, so the monthly comparison takes minutes.
Frequently asked questions
What is the difference between a budget forecast and a cash flow forecast?
A budget forecast shows whether the business makes a profit over a period: sales minus costs. A cash flow forecast shows whether you have enough money in the account each month, based on when cash actually comes in and goes out. A business can be profitable over the year and still run short of cash in a given month, so you need both.
How far ahead should a small business forecast?
For a small shop or side business, the first twelve months is enough to make decisions, split by month or quarter. The SBA suggests a longer outlook in a full business plan, with monthly or quarterly detail for the first year. If you are applying for a loan, ask the lender what they expect.
How do I forecast sales with no sales history?
Build it from volume: how many potential customers you can reach per day or week, what share buys, and the average order. Base each number on a real test (a market day, pre-orders, a sales page) or on a comparable business, and always run a scenario with 30% fewer sales.
What is a good profit margin for a small business?
There is no universal answer; it depends on the sector, prices and volumes. Start by making sure your contribution margin per unit covers your fixed costs at a realistic volume, then compare with businesses like yours. Our guide on markup vs margin explains the two percentages people often confuse.
In short
A one-page budget forecast is an average price, a realistic volume, a variable cost per unit, a complete list of fixed costs, and a cautious scenario. In an hour it tells you whether the business covers its costs, how much you need to sell to reach your goal, and which assumption to watch first.
First step: write down your average price and how many units you expect to sell next month, with the reason for that number.
Sources
- U.S. Small Business Administration, "Write your business plan" (financial projections): sba.gov.
- U.S. Small Business Administration, "Calculate your startup costs" (fixed, variable and semi-variable costs; break-even formula): sba.gov.
- Internal Revenue Service, "Self-employment tax (Social Security and Medicare taxes)": irs.gov.
- Internal Revenue Service, "Estimated taxes": irs.gov.
- HM Revenue & Customs, "Tax-free allowances on property and trading income": gov.uk.
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