The Importance of Budgeting in Business
Some business owners begin their operation with a wave of optimism and enthusiasm but without a well thought out budget they find it is not possible to create a successful action plan.
When running a business it’s easy to get bogged down with day to day problems and miss the bigger picture. Successful businesses allocate time to create and manage budgets, prepare and review business plans and regularly monitor their financial situation and business performance.
Budgeting identifies current available capital, provides an estimate of expenditure and anticipates incoming revenue. By referring to the budget businesses can measure performance against expenditure and ensure that resources are available for initiatives that support business growth and development. It enables the business owner to concentrate on cash flow, reducing costs, improving profits and increasing returns on investment.
Budgeting is the basis for all business success. It helps with both planning and control of the finances of the business. If there is no control over spending, planning is futile and if there is no planning there are no business objectives to achieve.
A budget is a plan to:
- control the finances of the business
- ensure that the business can fund its current commitments
- enable the business to meet it objectives and make confident financial decisions; and
- make sure that the business has money for future projects.
The benefits of budgeting should never be underestimated when running a business:
- budgeting estimates revenue, plans expenditure and restricts any spending that is not part of the plan
- budgeting ensures that money is allocated to those things that support the strategic objectives of the business
- a well communicated budget helps everyone understand the priorities of the business
- the process of creating a budget provides opportunities to involve staff, resulting in them sharing the organisation’s vision; and
- engaging the team in reviewing and comparing the budget with actuals can provide information that highlights the strengths and weaknesses of the business.
If you’re running your business without a proper budget you may find you’re actually just running around in circles and not meeting your long-term goals. By taking the time now to set a budget, you will free up time in the future and give yourself the best chance of achieving the rewards you want for your hard work.