How Budgets Can Positively Impact Your Business
Have you ever gotten to the end of the year, saw the results, and wondered “I thought we had a better year than that. Where did all the money go?” If so, it’s a good bet that you probably didn’t use a budget and most likely could have benefited greatly if you had.
Financial expert Dave Ramsey refers to a budget as something that tells your money where to go so you’re not left wondering where it went. While he tends to say that in reference to personal finance, the relevance to business is undeniable.
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3 Reasons Why You Should Have A Budget For Your Business
The use of a budget has many benefits in the world of business. Some of them are more prominent and universal than others, but here are a few I’ve had the privilege of witnessing first hand.
1. It will help you understand the “money” part of your business.
It’s impossible to develop a budget without first understanding what is going on in your business. Whether or not you have a thorough understanding of your business’s finances, the reality is that there is probably more that could be uncovered. Do you really know what it costs to make that product or provide that service? Do you really know who your largest customer is and which ones have the greatest potential for growth? The process of developing, maintaining, using and reviewing a budget can help you understand the answers to those key questions.
2. A budget will enable better cash management.
I had a professor in college who would constantly say, “cash is king.” After seeing and studying the way cash had an impact on a company’s ability to survive (and potentially thrive) during the recession and come out strong, I have to agree. If cash really is king, however, why not have a detailed plan in place for its source and its purpose? Whether it’s paying your suppliers or paying your employees, you want to be sure you have an adequate source of cash on hand. A good budget will be able to tell you not only how much cash you need, but when you will need it.
3. A budget will foster accountability and transparency.
Having the ability to successfully set and manage expectations can be one of the most useful skills in business and having a budget allows you to do just that. Employees responsible for sales will know who their targets are and those who manage expenses will know what they have to work with. Furthermore, when developing the budget, seek key employees’ input and promote their ownership of it. Once the period is over, there will be no question where the company’s success came from and where there might be room for improvement.
Now that I’ve let you in on a few benefits of budgeting, I can already hear the words about to come out of your mouth … “but I just don’t have the time!” While there is no denying that the development, maintenance and review of a budget takes time, the alternative of not using one could have costs that are much greater. Virtually any statistic related to being successful will show that the likelihood of achieving a goal, whether in life or in business, is much greater if you have a plan. After all, failing to plan is planning to fail.
If you have more questions about the benefits or process of budgeting, or you would like to start using one but don’t know where to start, email Rea & Associates. Our team is happy to discuss your specific challenges and can help you help you discover how you can start getting more from your budget.
By Andrew Geiser, CPA (Millersburg office)
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