For many people, the word “budget” is synonymous with “restrictions” and may have an overall negative feeling to it. So much so, that some people avoid budgeting altogether. But If you are a business owner, creating and following a budget is the backbone of your financial planning.
Rather than seeing budgets as restrictions, let’s shift perspective and consider budgets to be roadmaps to meet your business goals.
Let’s look at how financial budgets benefit your business.
Budgets allow you to plan.
The first question you need to consider when building your budget is, “Will this budget align with the business goals?” When keeping overall business goals in mind, your budget serves as a plan on how you can best attain your goals. Focusing on driving revenue? Production and sales may take a bigger piece of the budget pie. Growing your workforce? Human resources and training may take more funding. It all comes down to what your business priorities are and making sure your budgetary allocations support your goals.
Budgets help determine priorities.
As most business owners know, budgets are not limitless, which simply means that you need to prioritize spending to meet the business goals that you have established. If you are focusing on driving revenue, you may prioritize sales and marketing initiatives over updating technology systems. If your business goals include improving customer experience, the technology update may take priority over increase sales and marketing funds. It all comes down to what your business priorities are and making sure your budgetary allocations support your goals.
Budgets help organize and analyze spending.
A key benefit to budgeting is gaining insight into how you are acquiring and spending money. Having clean financials will help you identify the areas that are driving the expense and revenue lines. This data will guide you in better planning future revenue streams and spending allocations. As actual revenue and expense numbers come in, run a “budget to actual” financial report to see how the numbers compare. This report will help you identify what areas need to review and update your budget as needed. This exercise will help you stay on track with your annual goals and identify any trends that may need adjustments.
Good budgets anticipate the unexpected.
If you have been in business a while you have probably already experienced unexpected and uncontrollable changes in revenue and/or expenses. These are situations that pop up out of nowhere and reduce or drain the funds you have allocated for other projects (Hello 2020!). While you cannot predict what may happen, budgeting funds for the unexpected situations that will inevitably come up is a good idea.
Budgets assist in tracking goals.
The very nature of budgets requires monitoring, tracking, and adjusting as needed, which leads to greater goal accountability. Budgets are rarely (if ever!) written in stone and can be flexible to meet your evolving business needs. The intent is to keep your eye on how the business is performing and make any adjustments necessary to reach your ultimate business goal.
Rather than being a necessary evil or a nuisance, budgets are an informative tool in managing your business. If you need help establishing and monitoring your budgets and financials, give us a call, we’d be happy to assist.