How a business budget works
A business budget estimates how much money your business expects to receive and spend during a specific period. Looking at the budget month by month is especially useful because revenue and expenses do not always move at the same time. A business can be profitable over the full period and still run short of cash temporarily because of a large one-time purchase, a slow revenue month, or an annual bill arriving all at once.
This calculator combines expected revenue, COGS, payroll, operating expenses, irregular costs, and starting cash to show both the projected profit and the path your cash balance takes throughout the budget period.
How the monthly budget is calculated
1. Revenue
The calculator can keep revenue the same each month, increase it by a monthly growth rate, or let you enter a different revenue amount for every month.
Monthly Revenue = Sum of All Revenue Sources With monthly growth enabled, each month's revenue is based on the previous month's projected revenue.
Month n Revenue = Starting Revenue × (1 + Growth Rate)n - 1 For example, if starting revenue is $25,000 and monthly growth is 3%, month 2 revenue is $25,750 and month 3 revenue is $26,522.50.
2. COGS, payroll, and operating expenses
COGS, payroll, and operating expenses can be entered as either a fixed dollar amount or a percentage of that month's revenue.
Expense = Fixed Amount Expense = Monthly Revenue × Expense Percentage For example, with $25,000 in monthly revenue and COGS of 20%, COGS is $5,000. If marketing is set to 8% of revenue, marketing costs $2,000 that month. Percentage-based expenses automatically increase or decrease as revenue changes.
3. One-time and recurring irregular expenses
Some business costs do not occur every month. You can enter one-time, quarterly, semiannual, and annual expenses and specify the month in which they begin.
Unlike an expense calculator that averages periodic costs across a year, this budget puts the full expense into the month when it is scheduled to occur. This gives the cash-flow projection a clearer picture of when the budget assumes those payments will occur.
Quarterly = Every 3 Months •
Semiannual = Every 6 Months •
Annual = Every 12 Months
For example, a $4,000 annual insurance bill is recorded as a $4,000 expense in its scheduled month. It is not treated as twelve separate $333.33 monthly expenses.
4. Operating profit
Operating profit shows what remains after revenue is reduced by COGS, payroll, and operating expenses, before one-time or irregular costs and the optional tax reserve are taken into account.
Revenue − COGS − Payroll − Operating Expenses 5. Net cash flow
Net cash flow reflects the total change in the business's cash position during a particular month. It takes the monthly Budgeted Profit and adjusts for cash movements that are not included in that profit calculation, such as capital purchases, loan principal payments, and owner contributions or draws.
Net Cash Flow = Budgeted Profit − Capital Purchases − Loan Principal Payments + Owner Contributions − Owner Draws
A positive net cash flow increases the business's cash balance, while a negative net cash flow reduces it.
6. Budgeted profit
Budgeted Profit is the amount left after the revenue and all expenses included in the budget have been accounted for, including COGS, payroll, operating expenses, irregular expenses, and any optional tax reserve.
Budgeted Profit = Revenue − COGS − Payroll − Operating Expenses − One-Time/Irregular Expenses − Tax Reserve This is a projected budget figure, not a substitute for accounting profit or a financial statement prepared under applicable accounting rules.
7. Ending cash
Ending cash shows how much cash the business is projected to have at the end of each month. The starting cash balance is used for the first month, and each month's net cash flow is then added to the previous balance.
Beginning Cash + Net Cash Flow Each month's ending cash becomes the next month's beginning cash. This creates a rolling projection rather than a collection of independent monthly calculations.
Why the lowest cash balance matters
A business can finish the budget period with a healthy cash balance while still experiencing a cash shortage earlier in the period. The Lowest Cash Balance shows the smallest projected cash balance at any point during the budget period. If it falls below zero, the budget indicates a potential cash shortfall even if the ending balance is positive.
Smallest Projected Ending Cash Balance During the Budget Period Business budget example
Suppose a business starts with $10,000 in cash and expects $25,000 in monthly revenue from product sales, services, and other income. It expects revenue to grow by 3% per month.
Its starting-month expenses are:
- COGS: 20% of revenue = $5,000
- Payroll: $8,000
- Rent: $2,000
- Marketing: 8% of revenue = $2,000
- Software: $500
- Insurance: $1,500
Total regular expenses in the first month are therefore:
$5,000 + $8,000 + $2,000 + $2,000 + $500 + $1,500
= $19,000
With $25,000 of revenue, the first month's operating profit is:
$25,000 − $19,000 = $6,000 f there are no irregular expenses, tax reserve, or cash-flow adjustments in that month, the $6,000 operating profit also produces $6,000 of net cash flow.
$10,000 + $6,000 = $16,000 The following months can be different. With 3% monthly revenue growth, month 2 revenue becomes $25,750. If the percentage-based expenses grow with revenue while fixed expenses remain unchanged, the operating profit also changes. One-time and recurring expenses can then create larger cash outflows in specific months.
For example, if an $8,000 equipment purchase occurs in a month with $8,000 of operating profit, the business can have approximately $0 of net cash flow for that month before any tax reserve. The business has not necessarily become unprofitable overall, but the purchase has temporarily consumed the cash generated by operations.
Frequently asked questions
What is a business budget?
A business budget is a plan for expected revenue and expenses over a defined period. This calculator extends that idea by projecting profit, net cash flow, and the cash balance month by month.
What is the difference between a business budget and a business expense calculator?
A Business Expenses Calculator focuses on estimating business costs. A business budget combines expected revenue and expenses and projects how they affect profit and cash over time.
What is the difference between budgeted profit and net cash flow?
Budgeted Profit measures the projected profit after the expenses included in the budget. Net Cash Flow starts with Budgeted Profit and then accounts for cash-only adjustments such as capital purchases, loan principal payments, owner contributions, and owner draws. Therefore, the two figures can differ even within the calculator.
How is net cash flow calculated?
The calculator starts with Budgeted Profit and then accounts for cash-flow adjustments that affect the business's cash balance without being included in Budgeted Profit. These include capital purchases, loan principal payments, owner contributions, and owner draws.
In formula form: Net Cash Flow = Budgeted Profit − Capital Purchases − Loan Principal Payments + Owner Contributions − Owner Draws
A positive net cash flow increases the business's cash balance, while a negative net cash flow reduces it.
How are recurring expenses calculated?
Fixed expenses occur every month at the amount entered. Percentage-based expenses are calculated from that month's revenue. Quarterly, semiannual, and annual expenses are charged in the months specified rather than spread evenly across the budget period.
What does the lowest cash balance mean?
It is the smallest projected ending cash balance during the budget period. If it is negative, the budget projects a potential cash shortfall during at least one month, even if the final ending cash balance is positive.
Can revenue grow each month?
Yes. Select Monthly growth and enter the expected growth rate. Each month's projected revenue is calculated from the previous month's revenue.
What's the difference between Fixed and % of Revenue expenses?
Fixed expenses stay at the same dollar amount each month, regardless of revenue. Percentage-based expenses scale with that month's revenue. Rent is an example of a fixed expense, while payment processing fees or sales commissions can be examples of expenses that vary with revenue.
Is the tax reserve the same as actual business taxes?
No. The tax reserve is a budgeting assumption that sets aside the percentage you enter from positive operating profit. It does not calculate actual tax liability, which depends on factors such as business structure, taxable income, deductions, and local tax rules.
Why can a profitable business have a negative cash balance?
A large one-time or recurring payment can reduce cash sharply in a particular month even when the business is profitable over the full budget period. This is why the calculator tracks the lowest cash balance as well as total profit and ending cash.