The goal of this article is to present a simple, realistic framework for managing your business income. The idea of budgeting can be overwhelming if you do not have a great relationship with the concept, or if you have none at all. For years, I was confused by the whole idea because I didn’t know what I was supposed to budget for. Once I started working with simple percentage range guidelines (explained below), and recommending them to my clients, business life has become a whole lot easier.

It’s important to note that, while I give an example of a budgeting concept in the following paragraphs, you can decide how you structure your budget. It does not have to be one way; the most important thing is that you are organizing it the way that works for your business, while making it possible to keep it afloat.

A very small business usually establishes a budget to be able to have an overall awareness of what is going on financially, especially at the beginning. It is a plan for how income will be used for operations and future projects, and it is also a plan for establishing stability so that when the tax bill is due, there is money to pay it. I look at basic budgeting as a major stress-reducer; a tool for creating a calm base that you can come back to every time you have a decision to make that requires financial outlay. Your business budget is your anchor - not rigid, but solid.

Percentage-based budgeting works well because it adjusts with you as your business grows. Even if you have already established your business and are some months (or years) in, you can still create one. Here is an example breakdown, below:

I’ll explain each of these categories:

This amount is up to you. I like to include Owner pay first in my budgeting, because it reminds me that the business that I am running is sustaining my life - not the other way around. This is especially important if your business is what is keeping food on the table. The exact percentage is not as important as having a percentage in the first place. I like to think in terms of what amount of money would make it worth it to keep the business going for me, personally? Determining this will help keep resentment at bay.

What happens a lot of the time is that, in order to keep everything going, small business owners will pay business expenses first and take the leftovers for themselves. This is absolutely ok when you are starting out; the 40% is just an example target. If you can’t make it to that number while you are building, it is ok.

However, prioritizing owner pay establishes whether your business will be able to sustain itself in the long-term.

If you are self-employed, you will need to set aside and pay for your own tax. Tax can include federal, state, self-employment, and quarterly estimated payments, and amounts for these differ depending on your income, location, deductions, and business structure. I suggest that you spend some time looking at your state tax requirements, as well as the IRS tax tables (link to IRS business tax information here), to get an idea of what it is that you will actually owe, and set your budget percentage based on that. For a solo massage therapist in my state (Washington), that has an average income (under $100,000), the total taxes will probably come under 30%. I always save more than I need for tax; I do not like surprises.

This can be a wildly different amount, depending on where you operate your business, and what you are willing to pay for your location. For example, a therapist friend of mine rents a small room for $400 per month, pays a per-day rate at a spa of $60 per day (totaling $960 per month for four days per week), and is paid per session at another workplace without rent. She wants to keep her expenses under 20%. If she were to hypothetically make $8,000 per month before tax, she would want to keep rent at roughly $1,360, which would put her at about 17%. As income increases, that percentage decreases, giving more options for saving or investing in the business.

This is all of the operating expenses your business pays to keep itself going, other than rent (discussed above). Examples of this are:

And so on. If you are in the beginning stages of starting your business and haven’t yet established what you will need to operate it, a simple starting spot would be to look to the IRS Schedule C list of expenses, which shows the categories recognized by the IRS. Also, when you establish your accounting system (even if it is a spreadsheet system), you will have a chart of accounts, which will list normal expenses (based on IRS categories).

This amount is also up to you. I like to keep a buffer in my business account for future projects, replacing equipment, or to cover those unexpected expenses that can pop up. A buffer is a good idea to maintain a feeling of stability.

Again, these example percentages are not set in stone. They do come from general accounting and small business cash flow advice. If you are interested in reading more about financial frameworks, there are several books/resources that I love, which I will detail in a future article.

There are a few ways you could begin to look at this, depending on the stage your business is in:

There are a few mistakes that business owners can make when budgeting and implementing a budget. Below are some of the most common:

This is the beginning. You are taking the first step toward creating a stable business where you are in the driver’s seat. With regular review, you will begin to have a more stable relationship with your business income, and will be able to confidently make decisions that benefit you.

Start simple and start now.