Stop! Before you gloss over the topic of budgeting, at least give me a chance to tell you “why” you should seriously look at budgeting in your business!
Businesses are in the business of making money, but did you know that 69% of businesses don’t use a budget as a tool to do so?
So “why” is budgeting so important?
Here are four super important reasons:
- It indirectly has you define goals for your business – According to a Harvard Business study, you are 10 times more likely to achieve a goal, if it is written down. Budgeting forces you to define your goals related to both your revenue and expenses. Our brains are meant to solve problems. In creating a budget, you immediately start the process of solving the problems associated with achieving the targets spelled out in your budget. In doing so, it almost guarantees you achieve them, especially if you are continually monitoring your progress to them on a month by month basis.
- It helps you manage your cash flow – According to USBank, 82% of business fail because of cash flow problems. In mapping out a month by month budget, spanning a year, you can start to see where your level of revenue may not be able to cover your expenses. There are a lot of businesses that experience fluctuations in revenue, month to month, because of seasonality. On the other side, annual or semi-annual expenses also need to be considered and planned for. A budget allows you to get your head around the timing of these and helps you to plan ahead, reducing your risk in not having the cash you need.
- It curbs unplanned spending – One of the things that scare people away from budgeting is the thought that they won’t be able to spend money. At the end of the day, you are in charge of your business. But in being disciplined to a budget, it forces you to seriously think about the impact the expenditures your make today, and how they will impact your business tomorrow. A couple of dollars on this or that today, can add up and before you know it, you haven’t made any money. When you budget and track your performance to it, it is surprising how quickly you will recognize where you can make changes, without depriving yourself of those things that make a real difference.
- It builds your business – Most business owners want to achieve growth in their business, but they get caught up in the here and now. They forget to put their efforts into doing the things that will build their business. For example, they caught up in doing something like cleaning up their email, instead of getting out and making a call to a perspective customer. Focusing on achieving a revenue target, prioritizes the work you are doing in building your business. If you have staff it is even more important because it allows you to carve our targets and goals for your staff to achieve. It focuses everyone on growth.
Budgeting does not need to be difficult and you do not need to be an accountant. It can be done on a piece of paper, in an excel spreadsheet and today most accounting software also have a budget component.
The exciting thing about budgeting is it forces you to sit down and really think about what is possible in your business. It will require you to do a little planning and to get comfortable with challenging yourself, but where the real satisfaction is, is when you are able to exceed your own ideas of what is possible in your business.
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