Importance of having a budget for your business


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Planning and controlling is essential for any business to become success whether it is a small or big business.

The planning and control of the organizations financial resources can be done with the help of budget. Thus budget is the foundation for all business success.

Business planning is the formulation of strategies and determining the priorities of the business.

Controlling means how this plan or strategies are achieved through different process or management. Simply saying in other words is the implementation of the strategy.

If your business is not having a plan the success will mostly depends on the luck factor. It is not having any particular direction to move.

If there is a plan and not having control means no use of planning. Thus both are important for the success of a business.

Big businesses always have budget. They have different budgets for different uses. Specialized persons will be there to make strategies and plan. Someone may be hired from outside for this purpose. There may be another team for the controlling also.

Some companies big or small uses accounting software’s to do the budgeting. It will also help them to analyze and control the strategy and plan.

Unlike the big businesses many small businesses operate without a budget. This is happened because of many reasons. Some reasons are some owner’s don’t know how to make one, some believes that only large corporations need budget, some think that their time is wasted in preparing it, some even think they can’t follow it.

Many companies use some form of accounting or software for identifying, measuring, analyzing and reporting their financial information.

A budget is important for the success of business. It helps business in different ways. For a business whether it is small or big, it is helpful. Here I am going to point out some ways by which it helps a small business.


  1. A budget helps to plan for the future

A budget is a plan for the future based on some forecast numbers in financial terms. So it is clearly one of the most powerful planning tools.

Without plan a business will become impossible to run well. A planned well organized budget will help your business to run better.

A budget helps you to understand how much you can spend on each category. A plan can be made to reduce the expenses in the unessential category.

With the help of budget you can understand probable future expenses and income. With this help you can plan well and prepare for the future. This will help the business to run well in difficult situations also.

  1. A budget helps to meet organizations goal or objective

Every organization is running with an objective or goal. An organization or business without an objective will fail.

For an example you may fix a goal as to increase the sales by 50 % this year. To achieve this goal you need money for more production, more marketing etc.

A budget help business owners how to use revenue to achieve their business goals. Budget projects requirement of finance and revenues of the business. It also helps in understand spending patterns and make sure that business target and goal is achieved.

Thus a budget helps in determining how the organization will achieve short and long term strategy or goal or targets.

  1. A budget helps you to manage cash flow of the business

Cash flow means both the cash inflow as well as the cash outflow. Some business gives irregular cash inflows and outflows. So a better management of cash flow is a must for running a successful business.

Some months your cash inflow is more but other it may be less. In the same way expenses or cash outflow will also vary. A budget will give you a probable cash inflow as well as cash outflow.

Thus a budget gives you more knowledge about the cash flows and helps you to manage it well. A budget will help you to identify cash flow gaps and manage it by taking necessary steps for it.

  1. A budget gives your business a clear direction

A budget is a road-map that shows you where you want your business to go. It thus acts as a guide to run your business.

A strategy or plan can be made only by understanding financial situation of your business. It largely depends upon the financial activities, business activities of your business.

A budget will provide probable information about it and in effect give your business a clear direction.

  1. A budget helps you in financing

All business requires financing. Without finance a business cannot fulfill its strategy of goal or plan or objectives.

Budgeting ensures that funds are allocated to those things that support your plan or strategy or objective so that it fulfills it.

Small businesses get financing from financial institutions like banks. Banks and other lenders want to examine your budget before they agree to give you a loan.

A budget will help you to manage your cash flows better and thus helps you to manage your capital well. This in turn allows you to decrease your borrowings and run business more profitable.

  1. A budget helps you to control spending habits of organization

A budget estimates revenues, plans expenditures, and restricts spending habits that is not part of the plan.

A budgeting process allocates funds to each category and establishes boundaries for spending on particular category.

A budget follows a rule that spending on unallocated category and also more spending than allocated for a particular category is not tolerated. By this way a budget determines how and when resources are spend on each category.

These restrictions in budget allow you to put a control on spending habits of organization.

  1. A budget helps you to communicate priorities

It is always good to prioritize everything. An organization should also prioritize its objectives or strategies or goal or targets.

Priorities of the organization should be well communicated to all. A well communicated budget is a good tool which helps everyone to understand what business priorities are.

A budget also ensures that business priorities will be funded properly and in time.

  1. A budget helps you to allocate funds for aging facilities and equipment

The equipment and facilities you are having in your business are undergoing aging process. Sometimes technology may make it to not usable after sometime. Aging facilities and equipment can have a direct impact on customers as well as on company’s profit.

A properly prepared budget can be used to understand the requirement of funds for aging facilities and equipment so that it can be replaced in time to match with industry competition.

  1. A budget helps your business to grow

A budget always provides profit margin. This profit margin can be planned to reinvest in appropriate time to grow or expand your business.

Budgeting process ensures better utilization of available resources. Thus increase the profitability of the company and thus helps to grow or expand your business.

Budget also ensures that no money is wasted in unessential items. This in turn helps to make a reserve fund for new opportunities and thus to expand or grow your business in new areas.

Conclusion

A budget becomes fully usable only if it is follow up with an analysis. A review of budget with analysis of variance occurred in different categories will help a business or organization to run better.

So use the budget as a tracking tool.


Read Another Article:

What is the future of your organization?

Characteristics of good vision for your organization

Finance management tips for your business – 8 tasks

Importance of having a budget for your business


 

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