While the nuts and bolts of business budgeting can be quite simple, there is more to creating one than simply tallying income and expenses. Successful small businesses typically use a budget as a way to manage costs, set financial goals and create a plan to reach them. If your company is small and growing, now might be the right time to revisit your approach to budgeting.
What is a Budget?
Investopedia defines a budget as “an estimation of revenue and expenses over a specified future period of time; it is compiled and re-evaluated on a periodic basis.” But, a business budget is about more than merely financial numbers. It is a tool that can provide your organization with a glimpse into its financial future.
Why your Business needs Budget
A budget is useful, because it helps you figure out how much money you have, how much money you need to spend and how much money you need to bring in to meet your business goals. You many also need a budget to qualify for a loan or to justify a capital expense, like an office renovation.
3 Budgeting Tips that can Benefit any Small Business
Unless your company just opened its doors, it’s likely you have created a budget before. However, even experienced owners make mistakes in the budgeting process that can cost them big in the long run.
1) Set a Long Term Goal
If you are developing a budget for no reason, your efforts will likely yield little results. Instead, you should have a specific goal in mind for your business. Whether you want to move to a better location or hire more employees, creating a budget is a good first step in getting there. You will then have the information necessary to make the choices you need to achieve the results you desire.
2) Be Realistic
One of the keys to financial management is to make realistic projections about your company’s future. For example, don’t overestimate increases in income or reductions in spending. If you are wrong, you could wind up with a budget shortfall. It’s always best to err on the side of caution when estimating finances.
3) Continually Revise your Budget
Business budgeting is not done just once. It should be revisited and revised over time. As your income and expenses change, so should your overall financial forecast. Many companies examine and update their budgets on a monthly basis. For example, this routine activity can help you determine how to better position your company’s resources.
Essentially, your business’ budget is an analysis tool that will help you make better financial decisions. Rather than focus on every penny spent, it’s best to use it to look at the big picture.