If there’s one simple thing you can do to start the year off right for your organization, we’d have to say budgeting in business is vital.
Think about it: If you are going on a trip, you can either plan things out or hit the road and see what happens. If you have an itinerary and arrangements made, you know the route to take and where you’re going to stay and when. If you embark without a roadmap or itinerary, you might encounter some issues along the way that cost you time and money.
It’s the same with budgeting in business.
“It’s really important for businesses to create a budget so they can handle their short- and long-term objectives and create a roadmap for the future,” says Kerry Foster, Finatics Virtual CFO.
“A proper budget can inform your business decisions, but it also allows you to do a lot more.”
Here are five reasons why budgeting in business is important:
- To understand your current cash flow: As a business owner or leader, you need to know the reality of your cash flow. Can you meet current obligations? What is the impact of bringing on another employee? Do you have adequate cash reserves to weather a downturn or disruption in your business? Knowing your cash flow allows you to look at investment opportunities or make long-term commitments to suppliers/clients/employees.
- To manage risk and strategize how to handle financial issues: This is especially important if you — like many small business owners — have invested your own personal savings in your business and you want to safeguard your investment. It allows you to chart out debt obligations and expenditures. You’ll also want to plan for financial challenges, such as a drop in revenue, supply issues, or higher costs.
- To stay on track for your short- and long-term business goals: Having a financial plan helps you prepare for the things you want to do with your business in the year ahead. While you may need to adjust it each quarter depending on how things are going, you’ll have some insights to help inform your decision-making and metrics to use to measure your success. Budgeting also shows investors or lenders that you are planning wisely.
- To work toward the future: It’s really easy to stay focused on the present, but budgeting in business includes forward planning that maps out expenditures that will grow your business. This includes identifying sales trends and targets, prioritizing expenditures, developing a tax strategy, and conserving enough ready cash to see your business through tough times.
- To evaluate progress and success: A well thought out budget that is constructed properly allows you to track the progress of your business, to find out what is working and what is not. It not only informs the daily decisions you make, a proper budget is a useful way of providing quantifiable data that measures performance against expectations. The budget process helps you look realistically at your business and how it is operating, which is very reassuring for small business owners.
Kerry says budgeting in business is critical if you want to be successful and outsourcing your accounting is a great strategy for small- and medium-organizations.
“Don’t cut corners because the time you put into creating a financial plan and the money you invest in professional advice will ensure that your business has the best chance for success,” says Kerry.
Watch for our next blog, where we’ll discuss how to create a budget and what you need to have for high-level financial analysis.
If you’d like to explore having a virtual Accounting Team help with your business financial planning, please contact Finatics Accounting Solutions. We offer a complimentary consultation.