Budgeting is a powerful tool that allows businesses to create a secure financial plan. Ensuring that the business has enough money, not only to meet outgoings but also to expand and grow, can mean the difference between success and failure. Although budgeting can be extremely useful, it’s often maligned for feeling restrictive and some managers may feel like they don’t have the time. However, it’s only with some sort of financial roadmap that companies can make truly informed decisions, ensuring that they have a viable and hopefully lucrative future.
Now that we know just how important budgeting is, what is the best way in which to use it?
What is a budget?
It’s easy to talk about budgeting but what does it actually entail? Primarily, a budget will look at projected income over a certain period of time, usually yearly or quarterly. This income will then be contrasted with projected expenses and this allows the business to get a rough idea of the money they will be left with. This is important as it means business owners can plan specific projects, campaigns or even acquire new employees, knowing they will have the funding to do so.
Budgeting can be as simple or as comprehensive as you want or need it to be. Of course, business can be extremely unpredictable and there’s no guarantee that your projections will always be correct. However, planning for future finances, no matter how minimal, will always offer a greater chance of success when compared with no preparation.
Roadmap
Of course, the main advantage of budgeting is that it provides a financial roadmap for businesses to follow. Running a business can be daunting, even for those with experience and having a plan, however simple, can provide a level of stability. As well as offering a roadmap, budgeting can also provide insight into resource allocation. After all, it’s only with some sort of foresight that you can determine where to move specific resources throughout the business. Will the coming quarter require an investment into the workspace, what about an increase in employees? Maybe you’ll need to make some small cuts in order to balance the books. A budget can help to answer all of these questions and more.
Goals
When we think of budgeting, we often focus on the financial applications, however it’s also a fantastic tool for goal setting. For example, if the budget requires a specific amount of revenue in order to function, this can be a milestone for the business to aim for. This can manifest in a variety of different ways, from sales to customer acquisition or even just clicks on the website. Any way in which a company can identify a specific goal, is an opportunity to incentivise the workforce and aim for success.
Analysis
Budgeting also offers an invaluable tool for internal analysis. For example, if the budget is off in some way, the business can attempt to find out why this has happened. If income is down, why is it down and how can the company adapt in order to remedy this? What if outgoings are higher than expected and what does this mean for future growth? Even when a business doesn’t manage to balance their budget, it still provides much needed insight.
Investment
Businesses both large and small will often seek out investment in order to stimulate growth. There are certain qualities that investors will look for in order to ascertain whether your company is a good candidate. Having a budget is a way to set your business apart from the rest, showcasing professionalism and a degree of responsibility. Therefore, budgeting is not just a useful tool on its own but also offers a way to legitimise the company.
Creating a budget may seem like another time-consuming task but the potential benefits are substantial.
Businesses who are looking for professional help with their budgeting and forecasting should look no further than Fund Flow. They offer comprehensive budgeting services with advice from experts in the field. For more information on Fund Flow and everything they have to offer, don’t hesitate to visit the website.
