This article will go into detail about the specific benefits of creating a budget for your business but all the points can be put under one single heading – a budget gives you greater control. With a budget you get a better understanding of your business and you can predict where it will be in the short, medium, and long term. You can also use a budget to plan for the future, including making contingency plans.
In next week’s blog we will look at how to create a business budget. This week, however, the focus is on the benefits.
So, here are the main benefits of creating a budget in your business:
- Gives you a clear understanding of how many sales you need to make – a budget will show you how many sales you need to make to cover the costs of your business. Crucially, this applies to a time in the future as much as it does now, i.e. with a budget you can predict how many sales you will need in six months, 12 months, or at another point in the future.
- Helps with investment planning – a business budget also helps with investment planning. It can show when you are likely to be able to make the investment, and how much you can invest. A budget will also show what your business needs to do in order to get to the stage where the investment can be made.
- Helps with general planning – a budget also helps you plan for the future more generally. For example, it can tell you when you can start the recruitment process for bringing in new staff.
- Identifies risks – a budget will highlight many of the risks, hazards, and obstacles that your business may face in the future. An example is cash flow problems. By identifying problems like this early (long before they actually happen) you can take action to mitigate them.
- Improves decision making – you and your management team will have better information for taking decisions when there is a business budget in place. You will also have greater control over costs and the direction the business is moving. This will enable you to, for example, efficiently allocate resources.
- Promotes a forward-thinking mentality – many small and medium sized businesses are so focused on delivering for customers now that they do not spend enough time planning and strategizing for the future. A budget is a tool your business can use to create a more forward-thinking and planning culture.
- Let’s you model and make predictions – what would happen to your business if you lost your largest client? What would happen if your sales dropped by 15 percent? What would happen if your sales increased by 15 percent? What would happen if you were able to cut costs over the next 12 months, and what would happen if the new product launch doesn’t go as well as anticipated? With a business budget you can model all these scenarios (and more) so you can have a better understanding of their impact on your business.
A business budget is, therefore, a useful tool so it is worthwhile taking the time to create, manage, and refer to one. In next week’s blog we will cover how to do this.
For more help and advice with your business, including with budgeting, please contact a member of the Gilroy Gannon team today.