Defining a budget is a crucial step to ensure that your business has a better chance of being successful. Your financial budget will usually include your business goals against your business costs. Budgets may be reviewed annually, however some companies may do a budget review more regularly. Below are 4 reasons why a small business needs to have a budget in place.
Avoid the negative impact of the unknown
‘Unforeseen Expenses’ have been listed as one of the top financial challenges of small businesses. The impact of unforeseen expenses can be avoided or at least reduced through budgeting. While you may not be able to plan for specifics, it is always advised to leave a bit of wiggle room in your budget to cover these unexpected expenses. If a business had a budget and in that, they provided a little extra wiggle room for an unforeseen expense then they could avoid this problem just by having a budget in place.
Helps you to plan and know what action to take
Budgets can also be seen like an action plan, as it helps you to allocate resources to specific areas such as sales and marketing. You can also refer back to the financial budget to see if the money you have spent on those areas have helped you to achieve your performance goals.
Likely to reduce stress
Running a business can be stressful. There are lots of things to think about and manage. If you have a budget in place, then you’re more likely going to be able to make better financial choices.. If there is no control over spending, then the business may fall into financial difficulty. If you have a clear plan this will give more peace of mind.
More likely to succeed - Performance & growth
Having a financial budget helps a business to see what capital they need, what capital they have available, and it also provides an estimation of the business' expenses and their potential incoming revenue. Some of this will be displayed as a predicted forecast. Alongside the business financial budget, it will include the businesses goals such as how much they want to turnover. For example, if the business wants to turn over 1 million in year 2, by doing a budget they have established that they need to spend 15% on sales and marketing to achieve this aim. Budgeting is important for business success as it gives insight and helps you to plan to achieve your business goals.
There are online tools to help you with your small business budgeting. Here at Metarelic we help you with spend management to ensure you are on track with your financial budget.
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