10 Reasons why a budget is good for your business
Now is an ideal time to be setting a budget for the 2019 financial year. Many of us think of a budget as something we ‘should’ do, but don’t get around to it. Hopefully, there is some motivation in the following, and a budget will now become an end-of-financial-year priority for you.
We can all get caught up in the day-to-day operation of our business. With all the demands of business, we don’t always give our finances the attention they deserve, even though sound financial performance is essential for our business success. You are more likely to achieve financial success if this is where your attention is.
2. Set Goals
A budget is a good tool to support setting your business goals for the coming year. A budget encourages you to quantify your goals for the coming year and ideal business growth. For businesses with seasonally affected income, a budget will map out which months to expect higher income, and which months are more likely to be lean.
When looking at goals for increased income, a budget is a tool that allows you to factor in the increased costs of earning more income. You might need to hire more staff, which will not only increase your wages bill but also your superannuation and workers compensation expenses. If you need to purchase a new desk or computer or chair, these costs can also be built into your budget.
4. Measure performance
A budget is a great tool for measuring and analysing business performance if it is used to measure actual performance against budgeted expectations on a regular basis. Meeting or exceeding budgeted sales targets can be a great motivator to continue with the hard work, a particularly successful product or service, or even marketing exercise.
5. Break even
A budget can help you to identify what is the absolute minimum you need to earn to cover your costs, whether this includes your own income.
6. Consider your profit margin
A budget can be useful in quantifying the income needed to maintain a consistent or desirable profit margin, particularly when costs increase. Plans on how to achieve increased sales to cover cost increases then can be formulated.
7. The basis for cash flow
A budget can provide a good basis for projected cash flows, giving you a picture of when money is going to come into the business and when money is going to go out of the business. It will help you to identify if cash flow is going to be a problem at any stage, giving you time to prepare for this.
Your budget will give you some indication of whether you might need to invest more money in your business to achieve your goals, and whether you might need to consider some financing to cover these objectives.
9. Warning, warning
Regular review of actual income and expenses against budgeted expectations can highlight issues with greater than expected costs or lower than expected income on a timelier basis that then allows you to act on a timelier basis. Underperformance is not something you want to wait until the end of the year to discover.
The process of setting a budget and then comparing actual figures and business performance against these projections on a regular basis will provide a lot more clarity and understanding of your business financials, and how they impact on your business success
Budget figures don’t need to set in concrete and can be reviewed and revised as circumstances change, but the benefit lies in creating a budget and using it.
If you have another good reason to prepare and implement a budget for your business, we would love to hear it. Please email email@example.com and use Budget Reason in the subject line.