How To Set A Business Budget Even With Unstable (Freelancer) Income

Budgeting is one of the most important things to do for your personal life and for your business, though when you don't have a stable (set) income per month/week/year it's very tough set that budget! So how do you set a business budget even with an unstable and inconsistent income? First, this isn't about setting a personal budget, this is all about the business only and will apply to start-ups, freelancers, entrepreneurial adventures and small & medium local businesses.


A business budget can be daunting especially when you don't know what the numbers are coming in (and going out). As a freelancer sometimes you might hit a good month and make an extra $6,000 or it might be zero. As a local business one month you might be rolling in the cash flow of a season and the next no one even comes in your door. So what do you do when the money coming in isn't a set amount per month and thus making a budget seems impossible? It's simple: you do the best you can with the information you have and you (realistically) fudge the rest. This is simple once I explain it to you, but it won't be easy.

There are 3 things you need to look at first in a business budget in these scenarios:

  1. Business debts/expenses (current).
  2. Bare minimum you can afford to pay yourself each and every month regardless of company performance.
  3. Expected (future) business expenses.

You might be thinking that you need to look at the income/profit for the company, but since we don't know what that's going to be (yet) we're working with what we do know! Let's take those three items piece by piece.

The easiest way to keep track of all of this is not any complicated software, just use a simple spreadsheet (such as Google Docs Spreadsheets or MS Excel) and you'll go very far with it. I outline how to setup the spreadsheet at the bottom on this article.

First: current business expenses and debts.

You need to know what your bare minimum operating costs are. This means knowing monthly service fees, salaries (such as contractors, freelancers and assistances you bring in to help out), any money you currently owe (as a business), rent/lease costs, utilities, product purchase costs (per month), transportation, credit card debts. If it's a price your business is currently paying to stay open, list it here.

Second: your own pay.

Any business worth doing is worth doing right, and doing business right means you need to get paid. You don't have to pull a huge salary at all though. But you need to start applying systems and consistency to the company, which starts with paying yourself first. If, for example, your business has $1,000 in the bank right now, and you may or may not get another $500 next month … to play it safe you can start paying yourself $100 per month in salary. $100 too much? Try $50, or even $10. Whatever the number, make it a number you can be happy and safe with. This means a number that you will still get paid even if there is no business income that month, or even the next. $0.00 is not an acceptable number.

Third: Expected expenses.

A business needs to grow, but in-order to do so you need to bring people into your shop and purchase something. That means you'll either have to spend some time traveling, or purchasing ads, printing fryers, going to networking events, buying graphics, or you might even need to go to a trade show as a vendor (quick side note: a good idea is to start your own trade show organization / authority!). So what do you plan on spending money on? If you need to get to that trade show event in 3 months, then you better set the proper amount aside so that you can afford it! Write down what you plan to spend money on, as a business, for the upcoming year in one handy column. In the column next to the number write the date you'll need that future money.

Got the data, time to setup budgeting tools!

Now you know exactly what you're spending, how much you're planning to spend and how much goes to you. With this data organized it's time to make your first business budget, so open up a new spreadsheet with 3 columns:

  1. Expenses
  2. Self
  3. Profit

For the document title, I suggest using something that's easy to follow (for you) and use. We use a simple dating method for our files:

– [Import business document name]

I'm writing this document in July, 2014 and it's about our monthly profit and loss, so we make it something like: 1407 – Monthly P&L. That's what works for us. For you it might be “2014 – July – Monthly Finances” or even “07-2014 P&L”. There are many ways, doesn't matter which one you pick as long as you pick one and stick to it.

In the expenses column write your monthly expenses which does NOT include money you need to put away for future expenses (savings). In the self column write how much you're going to pay yourself. In the profit column write how much money you had come in that month, or if it's the beginning of the month leave that column blank for now and fill it in as you get business.

But this isn't a budget, this is just a P&L statement!

That's true, we haven't created a budget yet! But now we have the tools to do so. First I'll explain the simple budgeting plan, and then I'll give you a few examples.

Simple business budget 101

You know what you're going to spend at a bare minimum each month, this means you'll have to keep at least this much in the account. What this really also means is that you CANNOT over spend. Though, we also know what you will have to spend to stay afloat and to expand business.

To start, you will pay the bare minimum to pay in business. Don't plan to pay of debts quickly just yet. Anything above the bare minimum expenses goes towards two things: future expenses and self-pay.

It's that simple. (using semi-stable income)

Here is a more practical example. You run a etsy shop on the side to sell custom made bracelets from cloth and metal. You have a website with an ecommerce store, though most of your stuff is on Etsy. Every month you need to pre-purchase various metals for the latches and solder and cloth for the bands. Needles and tools break easily so they must be replaced frequently too but you're not exactly sure how long things last. Networking is huge for you since there are lot of children and crafty people in your area who love things like what you sell. You like your privacy so you also have a business phone line. There are also several trade show events that give you great exposure, so you want to get to those events this year.

Doing a rough breakdown of your current costs you find these costs:

  • Hosting, $15/m
  • Estimated merchant fees from both sites: 3% per sale.
  • Metal for products: you've averaged $600 each month.
  • Cloth per month: $300
  • Equipment: you estimate you go through 12 widgets a year and each widget costs you: $100 so you estimate $1200 per year which is $100 per month.
  • You use a hosted voip service that runs you: $20 per month.
  • Membership fees to local associations and trade guilds: $2353 per year which is roughly $200 a month

So monthly your total costs are around: $1300 (I'm rounding up), not including cost of sale. Including cost per sale if you sold 100 pieces you'd pay another 100 in fees (a complete estimated number) so you safely estimate $1400 per month in expenses.

You have $3000 in the corporate bank account. This means you'll be safe with expenses for another two months and you can afford to pay yourself $100 per month and still be ‘ok'. (1400 + 1400 + 100 + 100 = 3000) And that's assuming zero income for two months all while still purchasing material!

In this scenario, you won't be able to budget much of anything for future expenses. At this point you're taking care of the bare minimum and just getting buy. But let's assume for a minute that assuming zero profits in a month is not realistic … there's always something coming in. Let's say you've noticed that at a minimum you have around $1800 in (net profit) sales a month. Great.

Going along with our previous example: the $1800 in profit means you can start using that $1800 to save bit by bit for the trade show in 6 months. But will you be able to have enough money for that? Let's find out!

($1800 x 6) – ($1400 x 6) = ($400 x 6) = $2400

So if ALL the expenses for the trade show are less than $2400 you'll be able to save for it at a bare minimum. And that's assuming one of the worst case scenarios.

If you have no stable income at all:

If one month you make $10,000 and the next three months you make $0, then the following is the strategy for you:

  1. Cut any and all unnecessary expenses (I'll tell you why in a minute).
  2. Pay only the bare minimums for everything and pay yourself something small too.
  3. Leave any extra monies in the account as a safety buffer.

Cutting out all luxury expenses will let you know what you need to do do to survive. This is your baseline. Now you're working with just the bare essentials to get by. These are the numbers, similar to what we did in the above example, that you need to live by at a minimum no matter what. If you cannot afford these then you're already in trouble, though if you're ok with covering the minimums for a few months now you have room to create a good budget.

The minimums you're paying, including paying yourself, come out of that buffer. The buffer is your safety zone, your cushion should something go wrong … it's your lifeline.

So once you know the bare minimum to stay afloat put all money into ‘savings'.

Now out of THAT budget plan, you create your realistic budget. You know what you need to do to survive, so since you can cover that it's time to plan out what nice things you can do in your business to improve things. Only after you have the basics covered, pick a realistic percentage number that will go into your corporate savings account (doesn't have to be an actual account, it can just be a line in the spreadsheet) from every income you get.

For a quick realistic example: You need $200 in corporate money for the business to survive. In month one you make $1000. In month 2 and 3 you make nothing. That means at a bare minimum at month 3 you'll have $400 left. But that's ok. You've not spent your corporate money on needless things. You have your buffer going. On month 4 you make $2000. That leaves you with $2,200.

Now you know you have some wiggle room! So you set aside $300 a month for future expenses such a trade events, memberships and the like. In 2 months on the revised budget plan you'll have $600 to use for business growth all the while still keeping money in the account for expenses.

It's ok to re-adjust the budget every few months to account for new developments, cost changes and needs!