Is it worth to have a second budget when my business is still in its early days?

Hi, I'm quitting my job next week to work as a freelancer. My current employee will be my main client so I'm on rather firm ground. I thought I might need a second budget to log and plan all work-related expenses, but I've just been setting it up and I feel a bit underwhelmed that I can't think of enough categories to fill the screen. I already own all the equipment, I'm using a secondary bank account that I was already paying for, and I'll be working from home. So I set up Immediate Obligations > Salary, Google Ads, and Bank Fees, and True Expenses > Emergency Fund, Taxes, and that's it.

I don't know if I'm doing this wrong? Or maybe it's too early to have a business budget? There's loads of advice on how to set a personal budget with YNAB, but to be honest I wish there were a business budget template too that I could use.

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  • If this is a sole proprietorship, I'd leave everything in the personal budget. This saves having to track reimbursements between personal & business / owner draws, etc. (If you're in the US, all this goes on your personal income tax, anyway.)

    I would also budget for state and federal taxes separately. Don't forget to send the estimated taxes!

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      • Salmon Cup
      • Salmon_Cup.5
      • 4 wk ago
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      dakinemaui I guess your right. I was just following advice seen on this forum, but I guess that only applies to slightly larger small businesses. It's definitely more convenient to just create a new category within my personal budget. Thanks for your advice!

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    • Salmon Cup Within the personal budget, it's easier to blur the line between personal/business. Sometimes that's a good thing (e.g., at startup) and sometimes a bad thing (when the business really is supposed to be "standalone"). Don't forget you can switch approaches down the line. My opinion is at startup the less you need to worry about the better -- focus on the product/service you're providing for now. Best of luck!

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  • I would use a separate business budget if you expect to be doing a lot of business through it, regardless of its tax setup. If you're expecting your bread and butter to come from it, I'd say a separate budget makes sense. I run a partnership and began with just a few categories. As the business grew, we decided to have it convince us of the need for additional categories, rather than creating a bunch of categories we weren't using right now. It looked bare bones for awhile, but over time it evolved.

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  • What's wrong with bare bones if it covers everything you need?
    I would suggest keeping them separate.
    I have a small business that grosses around $10,000 to $12,000 per year right now. It gives me HUGE peace of mind to know that everything is very neatly organized so that if I ever get audited they really will have little to argue with. I don't technically pay myself anything at the moment, but it would not be hard to write an outgoing expense in the business budget, and create a matching incoming transaction in my personal budget. After all, that's all you do for a pay check anyway, it's just that you have to write the outgoing expense instead of an employer signing that over to you.

    If you already have all the accounts separated, and know how to make sure that business expenses stay on the business accounts only, then a separate budget is probably the simplest way to go. That also gives you the advantage of really thinking clearly about it as it's own entity now while it is still small and easy to manage. It is a lot harder to untangle those things later after they've gotten messy and you realize there is a need for more clarity.

    Feel free to shoot me a message if you want to kick around ideas or anything. I know what it's like feeling like you're a small fry. Sometimes when I see others discussing their "small businesses" I feel like I hardly have anything compared to them! But I run it just like I would expect to run a big business, because that's where I want to go.

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    • farfromtheusual you're so right -- "What's wrong with bare bones..."  Well said.

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      • Salmon Cup
      • Salmon_Cup.5
      • 3 wk ago
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      farfromtheusual I'm expecting to make around €1000 / €1500 at startup, hopefully doubling that in a year or so. But I'm not expecting to have any more expenses than what I have right now, except for replacing obsolete equipment which shouldn't happen in at least another three or four years. 

      What bothers me the most is how to pay myself from what I earn. I liked the idea of a business budget because it allowed me to pay myself a monthly salary. I know I'm a better budgeter when I have one single inflow of money every month, no matter how variable.

      I do have separate work and personal accounts, which I think should make everything easier. 

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    • Salmon Cup I would also say that it is wisest to run your business now as you want it to run when it's bigger. I assume you want to grow your business (1000 to 1500/month isn't a whole lot to live off of), so set up the systems in place that will serve you as you grow. Treat your business as you want it to be for you, not where you are now. If you have any sort of website, that will have monthly maintenance, links will have annual fees, driving to the store to buy paper or supplies lets you put that on the business. If you have a tax preparer or accountant, that can be put into the business. You may discover now that you're running it that way that there is more to expense than you expect, and likely the list will grow with time anyway, so make it easier on yourself and figure that all out while you're small.
      Good luck, I think more people should go into business for themselves, but most people can't handle it. It's the hardest thing I've ever done, but also one of the most rewarding. I get to work because I want to, not because I have to.

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  • farfromtheusual said:
    know how to make sure that business expenses stay on the business accounts only,

    This is really the kicker. If you can do that, sure, a separate budget makes a lot of sense. OP, do you have a dedicated credit card you'll use solely for business expenses (e.g., online purchases)? It doesn't have to be a "business" account (according to the credit card company); it just needs to not be in your personal budget with personal expenses on it.

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    • what dakinemaui said.

      "business" accounts are just any account you dedicate to your business. I have a checking account, a savings account, and a credit card that are all for my "business" but they aren't official business accounts according to the banks. I just use them to keep things separated easily.

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    • dakinemaui Yes!

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