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.
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!
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.
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.
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.