Thursday, 28 January 2016
Why Should Small Businesses Make Budgets?
Image via Wikipedia
Businesses should make budgets for many reasons. A budget supports a business plan by making sure that all spending lines up with the goals of the business. The budget helps the business to stay on track with its goals.
When business people are aware of what their goals are, they are less likely to do any spending that doesn’t help them to reach those goals. A budget allows business persons to look at the future in an organized manner. With a budget, the team can better predict both spending and income.
A budget gives accurate signals as to where waste is happening. It also forces business people to make the best spending decision when it comes to assets for the business. Queries will be made as to where a particular item can be obtained at the best price, when the purchase is planned and budgeted for ahead of time.
A budget helps business people to better predict when purchases can be made. It allows better analysis of cash flow. If an item of furniture, for example, costs $30,000 and there are other expenses amounting to $25,000 but the cash coming in for the period in which the purchase is being considered only amounts to $43,000, a budget will signal that there is a cash flow restriction.
A budget helps business persons to monitor the activities of the business. It helps them to know when something is off track and whether the business is performing as it should.
The budget draws attention to those areas of the business that are profitable. The budget-making process allows people involved in all aspects of the business to contribute to the strategic growth of the business. Budgets can be used to set objectives and rewards that every member of the business can share in when the objectives are achieved.