Start from actuals, not from hope
A budget is a plan for the year expressed in dollars: what you expect to earn, what you expect to spend and what should be left. The most reliable starting point is your income statement for the last full year, broken down by month. If your books are not reconciled, finish that first. A budget built on incomplete numbers will look precise and still be wrong.
Set the purpose before you open a spreadsheet. A budget to guide spending decisions is different from a forecast prepared for a lender, and both differ from the tax planning you do with an accountant. This guide covers the first kind. If you also need a cash view week by week, treat that as a separate exercise.
Forecast revenue in three cases
Build the revenue line from drivers you can name: number of customers, average order or hourly rate, repeat business, and known contracts. Avoid a single growth percentage applied to every month, because most businesses have a seasonal pattern that last year’s monthly figures will show you.
Prepare a cautious, an expected and a stronger version. Spend plans should be tied to the cautious case, with extras released only if the stronger case starts to appear. The numbers below are illustrative. If last year’s sales were $400,000 and you can name $300,000 of repeat or contracted work, the cautious case might sit near that figure rather than near last year’s total.
Sort costs into fixed, variable and optional
List every expense from last year and tag each one. Fixed costs, such as rent, insurance, software subscriptions and salaries, do not move with sales. Variable costs, such as materials, delivery and payment processing fees, rise and fall with activity. Optional costs, such as advertising tests or equipment upgrades, can be delayed if revenue is soft.
Update each line for what you know will change: a lease renewal, price increases from suppliers, a planned hire or a project ending. When you budget for a new employee, include more than wages. Employer payroll costs and the time it takes to become productive both matter, and the article on budgeting beyond wages goes through them. Where you are unsure of an amount, enter a reasoned estimate and note the assumption so you can check it later.
Add the tax and compliance calendar
Taxes are a cost with a schedule, so put them in the month they are paid, not the month they are earned. If you have employees, payroll deductions are remitted according to your remitter type. For a regular remitter, the CRA’s page sets the due date as the 15th day of the month after the remitting period. GST/HST returns for monthly and quarterly filers are due one month after the end of the reporting period.
If you operate through a corporation, ask your accountant whether you will be paying income tax in instalments. The CRA says corporations generally pay monthly unless they meet its conditions to pay quarterly, and that most corporate taxes do not require instalments in the first tax year after incorporation. A rough estimate of next year’s income tax, and when it falls due, belongs in the plan even if the exact figure comes later.
Turn the budget into a cash plan
Profit and cash move at different times. A sale in March may not be collected until May, and an annual insurance premium may be paid in one lump. Shift each revenue and expense line to the month the money is likely to move, using your typical collection time and payment terms. Then check the lowest point in the year.
If the lowest point is uncomfortably low, you have time to react: negotiate terms, build a reserve in stronger months, arrange a line of credit before you need it or delay an optional purchase. Learning this in a spreadsheet in November is far cheaper than learning it in the bank account in July.
Review monthly and adjust
Each month, compare actual results with the budget after your books are closed. Look at the largest differences first and write one sentence on why they happened. A variance caused by timing needs little action; a variance caused by a lost customer or a rising cost deserves a decision.
Do not rewrite the original budget every time results change. Keep it as your benchmark and, if conditions shift materially, add a revised version beside it. Share the monthly comparison with your accountant or bookkeeper, as it gives a quarterly review something concrete to discuss.
Your conversation checklist
- Reconcile last year’s books and export the income statement by month
- Write down what the budget is for and who will use it
- List revenue drivers and build cautious, expected and stronger cases
- Tag every expense as fixed, variable or optional
- Adjust costs for known changes such as renewals, price increases and hires
- Place payroll, GST/HST and corporate tax payments in the months they are due
- Shift revenue and expenses to the months cash actually moves
- Find the lowest cash point in the year and plan for it
- Compare budget with actuals after each month-end close
Further reading & sources
- CRA: When to remit (pay) payroll deductions and contributions
- CRA: Reporting requirements and deadlines – File your GST/HST return
- CRA: Corporate income tax instalment due dates
- CRA: Who has to pay corporate income tax in instalments
Tax rules and administrative requirements can change. Check the applicable official guidance and confirm your circumstances with a qualified adviser. This guide is not an assessment of your filing, payment or legal obligations.