Whether you are just starting out, or have an established business, having a budget is essential to your success. We are taking a closer look at some of the benefits to budgeting, and why it can make or break your business.
What is a Budget?
For a business, a budget serves as a roadmap. It is a working document that outlines expected revenue and expenditure, and start-up capital or additional funding. Businesses who consult a budget will avoid spending more than they have and falling into debt. A budget is used to plan a business’s future. In short, a budget:
- Helps business owners meet their objectives
- Ensures that the business can fund its commitments
- Helps owners fund future projects
- Helps control the finances of a business.
A Budget Helps Plan Ahead
Budgeting takes management away from the short-term, day-to-day running of the business and forces them to think about the long-term plan and success. They need to think about the company’s financial and competitive position, and how they plan to improve this.
A Budget Helps Review Profitability
When you’re focusing on the day-to-day management of a business, it is easy to lose sight of the areas where the company is making most of its money. By having a structured budget, a business can clearly see which areas make money, and which ones use it. This allows them to expand on some areas and drop others.
A Budget Guides Your Pricing
In order to set your prices and make a profit, you’ll need to understand your fixed and variable costs before you set your prices. A budget will shed light on the fixed costs that help you make products and deliver services and determine the break-even point at which you cover your fixed costs.
A Budget Improves your Flexibility to Changing Conditions
Being able to track your business’ performance through your budget makes it easier to make necessary changes as market conditions change. In times like the global pandemic or civil unrest, budgets are a valuable tool to help businesses cope and plan better.