When it comes to business, you’ll do a lot better if you have focus and direction rather than just meandering along aimlessly.
And what can help give you that focus and direction? A good business budget.
Used properly, it’s a way to measure your business’ actual performance. It’s a stake in the ground that can help you assess not only where you are now, but how well you’re progressing towards your targets and goals,
It’s also a sure-fire way to instil the disciplines your organisation needs to reach them.
Yes, they do take time and effort to pull together. But a well-planned business budget can become the benchmark to measure your business against. Put them in your monthly reporting packs, and you have a powerful way of overseeing your business’ financial performance as it happens.
And budgets are nothing new. Chances are you already use one at home, whether it’s to pay the monthly bills or plan for your next holiday. And business budgets are no different. They force you to live within your means and achieve the outcomes you want. A well-constructed budget that forecasts what should happen in the near future is one of the most effective and well-recognised business tools available.
Despite their advantages, not all small businesses have one. Some of the more common excuses include:
- “They take too much time and effort.”
- “They go out of date quickly.”
- “I haven’t got the time.”
- “I’ve got too many other things to worry about.”
Unfortunately, businesses that don’t use budgets to plan for the future are like ships without a compass, moving forward aimlessly without any real direction or purpose. And that lack of focus means they’re far less effective than they could be.
The benefits of effectively using a well-constructed budget far outweigh the time, cost and effort of creating them. Here are seven great reasons to create your business budget today:
- You can stop living from paycheck to paycheck.
- It gives you a clear focus, purpose and direction.
- It stops those impulse purchases.
- It helps you set and prioritise your business’ key financial goals.
- You learn to operate within your means.
- It lets you assess your business’s changing financial needs.
- You can sleep at night instead of lying awake worrying about your bills.
They can also inspire. Here’s what photographer JR Blackwell had to say about having a budget:
“Most of my photos were created with zero budget, but they just don’t compare to the photos that have dollars behind them. This year, I want to create work where I can unleash my creativity, employ other artists, and make what I see in my head happen in real life. I know what I can do with a budget of zero. Now I want to see what I can do with more.”
So where in a business would you use a budget?
At the corporate level.
A budget is a great way to measure the overall financial performance of your business.
At the departmental level.
Breaking down the corporate budget into key functional areas gives managers a level of accountability and responsibility. It also acts as a benchmark to measure how well they’re performing.
At a project level.
Every project should be planned out before it gets underway. And part of that plan is assessing what it will take to complete the project, along with the associated costs and benefits. A budget is a key governance tool for measuring progress. Too many projects fail to deliver due to poor planning, unrealistic budgets, and poor governance and control.
At a personal level.
Staff remuneration and bonuses are often connected to set targets (i.e. budgets). When set appropriately, budgets provide focus and purpose, and encourage everyone to perform at an acceptable level.
Large and medium-sized businesses often have sophisticated organisational structures and greater emphasis on governance, For them, budgets are a commonly accepted business tool. But like a lot of the tools big businesses use, budgets can be just as useful in small businesses as well.