It truly amazes me the number of businesses that don’t have an up-to-date budget, it’s like driving a car and not having a destination in mind.
A budget gives your business financial direction. You can’t control what you don’t measure, so a budget is a vital measure of the success of your business.
Benefits Of A Budget
The benefits of having a budget go much further than knowing how your business is doing financially, it can identify:
- Ways you can spend money to enhance your strategic advantage
- Costs that don’t add any real value to the business
I consider that there are three rules for your business when it comes to budgeting:
1. Have A Budget
A budget tells you if you have enough money to fund operations, expand the business and generate income. Without a budget you risk;
- Spending more money than your business is making
- Not spending enough money to grow the business and be competitive
One of the greatest benefits of having an up-to-date budget is peace of mind. You will know whether your business is on track and what you need to achieve both weekly and monthly to keep it on track.
2. Break Even Point
One of the most important pieces of information you need for your business is its break-even point. This is the amount of money your business needs to stay in business. A budget can tell you exactly what that figure is.
You should know your weekly and monthly break-even points off the top of your head. If you don’t, that’s a sign that your business may need to be managed more effectively.
3. Independent Advice
When it comes to creating your budget, some parts will be easier than others. You probably won’t have any trouble working out your business expenses i.e. rent, staff costs etc., the hard part is identifying potential revenue from your customers. A budget can help you identify new sales categories or opportunities to grow your business.
To help you with these, it helps to have an independent business advisor act as a sounding board and guide you in the preparation of an accurate and realistic business budget. As advisors, we see the performance of many businesses and know what growth rates are realistic and achievable to suit individual businesses.
There is no point having a business budget that is not firmly in reality and business advisors provide that for you.
Food For Thought
The process of preparing a budget for your business pays for itself upfront, as unnecessary expenses in the business are identified and eliminated.
The next time you get in your car I’m sure you will have a destination in mind, can the same clarity and direction be given to your business when next month arrives?