A budget is a financial plan for a company’s future. It projects revenue and expenses, enabling a business to make confident financial decisions. Many business owners underestimate the value of a budget. The following are a number of reasons why your company needs a budget.
- Enables accurate goal setting: A budget helps a business to set goals, priorities and spending caps. It shows where funding comes from and where new strategies might bring in revenue. A budget reminds you of your overall strategies when making decisions.
- Assists in writing a business plan: A realistic budget is an essential part of the business plan needed to raise capital for a company. It Indicates that the company has a viable strategy and a practical plan for making a profit.
- Allows planning in advance: A budget helps your company account for long term needs, maximize profits and distribute revenue effectively over the course of a fiscal year.
- Informs spending decisions: A budget establishes spending limits, promoting accountability. It shows how increased expenditures in one department can be balanced by a decrease in another, helping managers work together to avoid overspending while still providing necessities.
- Informs and motivates employees: A budget helps to unify and engage your employees by giving them quantifiable goals on which to focus. It encourages them to think of solutions to sales shortfalls/expense overages and to help the business hit its budget targets.
- Unifies stakeholders: A solid budget gets stakeholders on board with your goals, keeping all parties in agreement with the company’s objectives and plans for meeting them. It helps gauge progress enabling investors, shareholders, owners and managers to work together to keep the company healthy and on track.
- Enables performance evaluation: By tracking revenue and expenses, a budget helps evaluate the performance of your business over the course of the fiscal year. It ensures your company is sticking to the plan, pinpoints problems and identifies opportunities.
- Attracts investors/satisfies lenders: A detailed budget that your company adheres to shows lenders and potential investors that your business plan is working and inspires confidence in your business.
- Aids in determining staffing needs: A comprehensive budget will help you decide how many full-time, part-time or contract employees you need to reach your goals. It will assist you in determining whether you should do your own accounting/payroll or hire an outside consulting firm.
- Assist communication: The clear plans and expectations of a budget minimize confusion and create clear communication between departments and levels of management.
Budgeting is especially important for small businesses where being off on cost projections or estimated earnings can have a devastating effect on the company. Creating a budget for your small business makes operating your company easier, more efficient, gives you the best chance of achieving your long term goals and helps you reap rewards for your hard work. Consider hiring a Chartered Professional Accountant with expertise in business finance. They willl help your business create a detailed and viable budget.
Need help in creating a detailed and realistic budget for your business? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.