The Importance of Budgeting for Your Business
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If you’re thinking of opening a business or have just started one, you may have been warned about the importance of budgeting for your business. No small business can stay afloat without a tightly monitored budget, especially with inflation on the rise!
What is a budget?
A budget is a financial plan to earn more than you spend. It is not a one time plan. It should be constantly monitored and reworked each accounting period so the cash flow is positive for your business, even when sales are down.
What should I include?
When you budget for your business you should include anticipated expenses such as payroll, outsourcing (if applicable), advertising, insurance, loans, rent, and utilities. You will also want to plan for unexpected expenses such as new hire training, equipment failure, lease expiration, employee benefit fluctuation, damaged inventory, and lawsuits. Unexpected expenses can be covered if you plan to put money into an emergency fund.
What are the benefits?
It is vital that you budget for your business so you can keep your doors open, but there are other benefits that you may not have considered.
Attract and keep investors and stakeholders. Your stakeholders will expect quarterly reports to make sure their money is used responsibly and to ensure they are receiving the percentage they have agreed to. As your business grows you will attract more investors-and earn more business as a result.
Motivate and keep your staff. Employee turnover is high in this economy and training new employees is expensive and time consuming. If you budget for benefits, annual raises, and an exceptional company culture you will motivate your employees to stay in your business and grow your profits.
Pay off debt faster. Loan debt is a huge drain on your budget, and creating a plan to pay it off quickly will eliminate the bill as a future expense. Not to mention you’ll save money on loan interest.
Identify problems before they occur. When your budget is checked quarterly by an accounting professional (like us!) you will anticipate potential problems and can change your budget accordingly. This will help you keep a positive cash flow.
Plan for tax rebates and potential liabilities. A professional accountant can help you plan your business for special tax credits that will pay you at the end of each fiscal year. It will also make it easier for you to prepare your business taxes and avoid fraud.
Meet your financial goals.This may seem like an obvious benefit to budgeting for your business, but it is the most important! Unless you pay your bills, your business will close its doors.
How do I get started?
Recruit the right people. This is the first, and most important step. You will want a financial expert to help you budget for your business. If your budget is planned by an amateur, you miss out on some of the benefits of your budget and risk closing your doors for good. You will also want to carefully hire the right people as your employees to keep a positive company climate.
Create realistic budgets and even overestimate your expenses. Plan for both one-time and ongoing expenses. Tally the fluctuations in your expenses at the end of each quarterly review so that you can adjust your budget to accurately reflect your income and expenses. If you overestimate your expenses, you’ll find yourself with money you can pocket or save later.
Create a schedule to regularly review your budget. If you are just starting your business and cannot rely on the revenues of a previous year, it may benefit you to review your budget monthly instead of quarterly. This will help you catch overspending or reporting mistakes before it is too late.
Now that you know the importance of budgeting for your business, it’s time to take action! Do you have a plan, but want it reviewed by a professional? Reach out to the money experts today! We can’t wait to hear from you!