Why Every Business Should Have A Budget?
The main reason why businesses need a monthly, quarterly or annual budget is to protect and maintain the financial health of the business.
When you build a business, there are a lot of things to stay on top of, from marketing and finding new clients to building a website and establishing your digital presence. But there’s one element that you want to stay on top of from the very beginning—and that’s your budget. Having a detailed and accurate budget is a must if you want to build a thriving, sustainable business. But how, exactly, do you create one?
What’s a Budget—and Why Is It Important?
A budget is an overview of your business’ finances. It outlines key information on both the current state of your finances (including income and expenses) and your long-term financial goals. Because your budget will play a key role in making sound financial decisions, it should be one of the first tasks you tackle.
And, as a financially savvy business owner, you’ll also want to have a budget in place to help you:
- Make sound financial decisions. In many ways, your budget is like a financial road map. It gives the business structure & something to aim towards. It helps you evaluate where your finances currently stand—and what you need to do to hit your financial goals in the future. A budget gives the owner something to monitor performance against (in monthly management accounts vs the budget).
- Identify where to cut spending or grow revenue. Your budget can help you identify areas to decrease spending or increase revenue, which will increase your profitability in the process. It can help focus the business owner on what their main priorities are and can be a tool to cut out unnecessary costs.
- Land funding to grow your business. If you’re planning to apply for a business loan or raise funding from investors, you’ll need to provide a detailed budget that outlines your income and expenditure. A well defined budget gives the owner more control over their business & gives them peace of mind that their hard work is being recognised. It can help the business grow & become more profitable.
Now that you understand why budget creation is so important, you may get right to creating one. The budget needs to be challenging but achievable, having one that is too ambitious will make it redundant pretty quickly as it will de-motivate the users & therefore they won’t use it.
Putting in the work to create your budget may seem like a hassle. But while it takes a bit of time and energy, it’s worth the extra effort. Thorough budgeting you get the financial insights you need to make the right decisions for your business to grow, scale, and prosper in the future.
At Prosper Bailey Accountants, we help businesses with their budget based on their needs. Happy to help if you need professional advice.