Should you hire, increase prices or postpone an investment? A budget helps you consider these decisions before they turn into bills. It connects expected sales with the resources needed to deliver them.
Business budgeting means preparing a financial plan, comparing forecasts with actual results and deciding what to adjust. A simple spreadsheet is enough to get started, provided you understand the assumptions and review it regularly.
Key points
- A budget sets out assumptions about revenue, expenses and investment for a defined period.
- Budget monitoring explains variances; it does more than identify overspending.
- A profit and loss budget needs to be supported by a cash flow forecast.
- Update forecasts as circumstances change, while keeping the original budget as your reference point.
What is business budgeting?
It gives you a framework for decisions before you commit to spending. It also helps teams coordinate: a higher sales target may require more stock, production capacity or staff.
A budget is neither a certain prediction nor a document prepared only for the bank. It is a set of explicit assumptions you can test. For a small business, a well-maintained spreadsheet is often enough to begin.
Cost accounting helps explain costs already incurred by activity. Budgeting uses this information, among other inputs, to plan what comes next.
Check capacity and the timing of commitments
A revenue target becomes more useful when translated into customers, orders or billable hours. If you plan to deliver 200 jobs a month, check that the team can complete them and that your sales activity can generate the demand.
Dates matter as much as totals. A July hire does not create twelve months of expense in the first annual budget. However, the full annual cost will fall into the following year. A partial cost this year must not hide the longer commitment.
To calculate the cost of an employee, start with gross salary, add employer contributions and include a thirteenth-month salary where the employment contract or collective agreement requires it.
Document the main assumptions: volumes, prices, timing, purchase costs and available capacity. When results differ from the budget, you can identify which assumption changed instead of treating the variance as a calculation problem.
Three questions, three complementary views
| Budget | Question it answers | Example |
|---|---|---|
| Profit and loss budget | Will the planned activity make a profit? | Sales less goods and materials consumed, salaries, rent and other expenses, including depreciation. |
| Capital expenditure budget | Which long-term assets do we need to buy, and when? | A machine to order in March and bring into use in June. |
| Cash flow budget | Will we be able to pay each amount when it falls due? | The machine deposit is paid in March, even if the additional sales start in June. |
These views need to connect: investing in a machine is different from paying a phone bill. The payment affects cash flow; depreciation affects profit.
Revenue and profit: understand the difference
Before you build your budget, this French-language video by Sarah and Romain explains the difference between sales and profit. The guide then applies these basics to forecasting and variance analysis.
Explore the Entreprendre en Suisse channel with Sarah and Romain →
Build your budget around the business
Start with volumes and prices rather than an arbitrary growth percentage. How many customers, jobs or subscriptions can you reasonably sell? What capacity and spending will you need?
Separate variable costs, fixed costs and capital expenditure. Equipment paid for this year uses cash; its effect on profit may be spread through depreciation. Repaying the principal of a loan is not an operating expense.
If you use the effective VAT reporting method, exclude recoverable VAT from the profit budget and include VAT payments in cash flow. To incorporate these tables into a business plan, see our guide to financial forecasting.
Involve people close to the work when setting assumptions. Management sets the objectives, then teams check whether they are achievable. A few rounds of discussion are more useful than imposing a budget disconnected from production or sales constraints.
Example: does the sales target fit the schedule?
A consulting team has 1,200 hours available in a month. If 75% can actually be billed after administration, prospecting and other work, its billable capacity is 900 hours. At CHF 120 per hour excluding VAT, that represents CHF 108,000 in potential revenue, provided it wins the corresponding work.
A CHF 150,000 budget at the same rate would require 1,250 billable hours: more than the total 1,200 hours available before non-billable work. To make the target realistic, adjust the average price, organisation, timing or resources. Writing “sales up 39%” does not create the capacity to deliver them.
The same check works with room nights, service calls or units produced. Separate what you could deliver from what you expect to sell: spare capacity is not an order.
Spread the budget across the year
A chocolatier does not necessarily earn one-twelfth of annual sales every month. Before Christmas or Easter, it must buy and produce before receiving payment. Smoothing the budget would hide this seasonality.
A subscription startup faces another timing gap: recruitment may precede the expected revenue by several months. A workshop in Valais buying a machine needs to plan its deposit, delivery and gradual increase in production.
Prepare a monthly budget using the actual expected dates. Add a cash flow budget that reflects payment terms, VAT, investment and financing.
Explain budget variances, not just their size
The following example is a fictional monthly budget for a private small business. It does not describe public-sector budget accounting. All amounts are in CHF and cover a consistent scope of activity.
From budget to actual profit
| Monthly measure | Budget | Actual | Variance: actual − budget |
|---|---|---|---|
| Units sold | 100 | 90 | −10 |
| Average price, CHF | 200 | 210 | +10 |
| Revenue, CHF | 20,000 | 18,900 | −1,100 |
| Variable costs, CHF | 8,000 | 7,560 | −440 |
| Fixed costs, CHF | 10,000 | 10,300 | +300 |
| Profit, CHF | 2,000 | 1,040 | −960 |
The model assumes variable costs equal to 40% of sales. The sales volume effect is (90 − 100) × 200 = −CHF 2,000. The price effect is 90 × (210 − 200) = +CHF 900. Together, they explain the revenue variance of −CHF 1,100.
In this model, every CHF 100 of sales leaves CHF 60 after variable costs to cover fixed costs and generate profit. The CHF 1,100 sales shortfall therefore reduces profit by CHF 660; the additional fixed costs reduce it by a further CHF 300. This gives −660 − 300 = −CHF 960. Keep the original budget for this comparison and distinguish it from the updated forecast.
The CHF 440 reduction in variable costs does not automatically mean better efficiency: here, it accompanies lower sales. Depending on the real causes, the decision may concern sales volume, pricing or fixed costs.
Prepare more than one scenario
Prepare a base case and a downside case. Vary the assumptions that really matter: orders, collection times, material costs or hiring dates.
A buffer can be useful, but it should reflect an identified risk. Adding the same percentage everywhere mechanically makes the budget harder to interpret.
Set out the associated decisions too: which investment would you postpone, what order volume would justify hiring, and when would you seek funding?
Keep the original budget and update the forecast
After a few months, you have new information. Update the full-year forecast, but keep the approved budget as the reference. If you overwrite the original targets with actual results without a record, you lose the opportunity to learn from variances.
You can track three columns: original budget, actual results to date and latest annual forecast. The first records the plan; the second shows what happened; the third estimates what comes next using the information available.
Return to the example where budgeted profit of CHF 2,000 becomes CHF 1,040. “Lower sales” is only part of the explanation. Volume falls, the average price rises and fixed costs exceed the budget. Separating these effects helps you decide whether to focus on customer acquisition, capacity or spending.
Define possible responses for the downside case. If orders stay below a particular level for several periods, which investment can wait? If demand exceeds capacity, what resource should you prepare? A scenario becomes useful when it helps you act, not just when it changes the colours in a spreadsheet.
Set a regular review schedule
Each month, compare actual results with the budget for the main items. Explain significant variances, assign responsibility and agree an action. A fuller review each quarter may be enough when the business is stable.
The review should produce a few clear decisions, together with their expected effect on the coming periods.
Software or a spreadsheet can help. The value comes mainly from reliable accounts and a discussion of the assumptions, rather than the number of charts.
A 30-minute monthly review
- Check the data: are the month’s sales and expenses complete? A missing invoice must not become a false saving.
- Choose the three variances that matter: record each amount and explain its cause in one sentence.
- Decide: write down the action, the person responsible and the review date.
- Update the outlook: carry the new assumptions into the forecast and check their cash flow effect.
An actionable decision might read: “10 fewer jobs than planned; Sophie will follow up outstanding quotations by the 15th; review new orders at the next meeting.”
Turn the budget review into decisions
A useful budget rests on explicit assumptions and regular updates. It helps you anticipate business decisions and explain variances without rewriting the original plan.
Our accounting support can help you obtain reliable figures to compare forecasts with actual trading and prepare for upcoming commitments.
Frequently asked questions
Does a budget have to start on 1 January?
No. It can follow your financial year or a rolling period suited to the project. What matters is defining its time horizon clearly.
How is it different from a cash flow budget?
A profit and loss budget forecasts income and expenses. A cash flow budget forecasts money coming in and going out on the expected payment dates.
Can you change a budget during the year?
Yes. Keep the original version and clearly label the new forecast so you can understand what changed.
Sources and references
Romain Prieur is a Swiss certified public accountant and founder of Entreprendre.ch. With more than ten years of experience in audit and business advisory in Switzerland, he advises entrepreneurs on company formation, accounting and taxation.
