Budgets are used to track when and how you earn or spend money over a period of time. Preparing a budget is an important pillar of your overall business success and security. With a well-prepared budget, a business can plan out expenses, reach business goals and anticipate any operational changes as needed to support the business. A budget can also help a business understand its operating costs in greater detail and can be used to track performance against expected spend.
With the right budgeting practices in place, you can make data-based decisions that can drive the growth of your business. So, let’s take a closer look at five reasons a budget is absolutely vital.
1- Preparing for emergencies!
It’s fair to say we’ve had some turbulent times recently, and this very much highlights the need to plan for the unexpected. A budget is the ideal tool to help you prepare. It will allow you to set aside reserves for emergencies rather than diverting funds from other business operations and potentially introducing risk into your business.
2 – Trim costs and avoid overspending
The process of building a budget forces you to take a close look at all your spending habits. With inflation rising cost sensitivity is becoming essential and a deep review into all expenses could identify excess resources in some cost centres. So, you can trim these additional costs and avoid overspending to ensure you’re utilising your funds in other, more effective ways.
3 – Managing sales targets
A robust budget isn’t just about managing spend though, it’s also about determining how much revenue is needed to reach the company goals you set out for yourself. Once all fixed and variable costs are accounted for, the budgets allow for sales targets to be easily calculated and more importantly, monitored.
4 – Attracting investors
Investors are looking for companies who have their spend accounted for. A well-presented budget goes a long way to show your commitment to the business. If an investor is able to track the trajectory of the business growth and see how performance has fared against previous budgets, they’re going to have more confidence in investing – which ultimately drives value up.
5 – It helps you achieve your personal vision of success!!
Everyone has their personal vision of success – at Ascentis, we believe this is achieved through business success. So if you’re able to commit your long term business goals into annual, quarterly or even monthly budgets, you can easily cascade down your business vision into smaller, trackable performance indicators, allowing you to work toward your personal vision.
And don’t forget to track it….
Preparing your budget is only the first step in financial management. A continuous process of review and tracking your actual results against budgets will allow you to measure against your expected results and quickly react if the business is deviating, or put actions in place to increase growth.
If you need help with your budget, or would like financial advice, get in touch with our expert team today.