A business that doesn’t budget sets itself up for a host of financial problems down the road. This is true for businesses of all ages and sizes. Conversely, a business that develops short- and long-term business objectives by creating a detailed business plan can create a road map for financial success and opportunities to expand.
Just like a household, a business has certain debt obligations and expenditures it is responsible for. Imagine the potential implications if a business is unable to meet even one financial obligation, because of poor budgeting. Being unable to meet payroll means employees will leave the company; not carrying insurance leaves the company open to liability; failure to pay rent means eviction; and not paying statutory taxes on time leads to fines.
Developing an accurate budget is a critical component of financial success; that being said, a budget is a living tool that should change according to the needs of your business. When developing an initial budget, try best to accurately estimate income and expenses, but know that the figures will change as expenditures rise and fall. For example, if you overspend on office supplies but overestimate the cost of your utilities, feel free to adjust the numbers in the budget accordingly for that month – you didn’t do anything wrong! Budgeting is a trial-and-error process, and the accuracy of your estimations will improve as you continue to follow the budgeting model.
After the budget has been developed, it’s important to analyze actual results at the end of each month. Compare expenditures and income to the budget planned, and try to develop a sense of how you performed in relation to your budget goals.
Benefits of Budgeting:
A carefully constructed budget allows a business to continually track where they are financially. This allows for strategic, long-term planning for everything from current operating costs to potential expansion. Other benefits include:
- The ability to set sales goals
- The chance to open lines of credit
- The ability to make decisions about salaries, bonuses, benefits and overhead operating expenses
- Easier tax preparation (VAT)
- Plan and predict cash flows
To ensure budgeting is done accurately, it may be worthwhile to hire an outside accountant, or a business manager who has expertise in business finance. We can help you establish an accounting system, track expenditures and produce reports that will help you make calculated and informed decisions about business operations. Please click here to get details as to what we have to offer.
To sum up, it is very well said by Joe Biden that “Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”