 Introduction
Budgeting plays a key role in business and the concept is equally important for all businesses no matter what your size is. Without budgeting, many businesses carry the threat of failure and for those that do budget: failing to carry out the task correctly can have the same effect.
Many businesses overlook budgeting as they feel it is just more paperwork that ties away time that can be used elsewhere: they can do without more work in their already tight schedule. In fact, budgeting can help eliminate the pressure of time as it prepares for the future and foresees problems before they occur.
"budgeting prepares for the
future and foresees problems
before they occur"
Hopefully, after reading the article, you will learn that budgeting is an integral process in business and realize that the way forward comes from successful planning.
What is Budgeting? Budgeting is simply planning and the process of creating a budget should also be simple if you have access to appropriate and accurate information. Many new small business owners manage their business in a relaxed way and can often get along without the need for budgeting.
At this time, such business owners may take a leap trusting their instincts where little else information can give a better clue as to where their venture will take them in, say, 6-12 months: welcome to the entrepreneur.
As businesses grow, the amount of control that a business owner has on their business reduces significantly. It is therefore important that you remain in control of the business by budgeting to increase profits and performance. Consequently, budgeting allows you to think ahead to control the management of your business. As you will see, budgeting is based largely on the objectives of the business.
What is a Budget? A budget is a plan to… …by relying on solid figures that would otherwise have been based around guesswork and instincts. At any time, you should never confuse it with a forecast: a forecast is a prediction of the future whereas a budget is a planned outcome of the future that the business wants to achieve.
A budget indicates where your money will be going and how this money will be raised if your business does not have the cash flow to compensate. The main objective of a budget is to make your total income for a given period greater than or equal to ( break-even) your losses. It can also be seen as improving profitability. There are no fixed time periods that a budget must compensate for and commonly a business will prepare a budget to coincide with their financial year: arguably, this should be the maximum period that you budget. When people budget on such a large time scale, it is common for them to split the budget into monthly statements to make the process more manageable and feasible to follow. Many businesses also budget on a 1-4 week cycle, but to be truly effective, they should cover a period that will give your business some footing to go forward.
Budget: a Common Example So, where is the term budget commonly associated other than for business purposes? How about the budget made by the Chancellor of the Exchequer every year highlighting the expenditure plans of the government. This has exactly the same principle as the budget you would make for your business. They know what the money will be spent on and how it will be financed, mainly through taxes, which will be reconsidered each year with the proposed expenditure.
Article Index
1 Budgeting in Small Business |
