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Importance of having a business budget

Developing and implementing a budget is an extremely valuable activity for any business.  One of the most important financial tools for an organization is a budget.  It is also beneficial for the company because it assists in cash flow forecasting, which can prevent financial failure.  As an example, a business which is experiencing rapid growth could wipe out its available funds by the cash requirements needed to meet its increased demand for manufacturing inventory and not have enough funds in reserve to pay rent, utilities or employees.  It can take a considerable amount of time to manufacture goods and ship them.  Additionally, the buyer may not make payment for 30 to 60 days.  All of this could be devastating to the business’s cash flow and operations, even though the business is very profitable. 

Organizations that create and follow budgets are more likely to be successful than those that don’t.  Imagine all of the potential catastrophes a company could incur from not making important adjustments on a timely basis. 

Proper use of a budget by management requires continual monitoring, which enables quick adjustments that are necessary to ensure optimum success.  A company can be affected by many outside factors, including competition, increased demand, and the economy.  When outside factors affect the business, an adjustment to the budget and business plan may be necessary to survive. 

Budgeting is very important for small-business owners, who often operate on a small budget.  Being even a little bit off on cost projections or earnings can have a devastating effect on a small operation with limited funds.

Use of a budget allows for strategic, short, and long-term planning for everything from current operating costs to potential expansion.  Knowing where your budget stands can provide important information regarding the need to increase or decrease marketing, production, staffers, investment in new product lines, and setting earning goals in line with the organizations’ financial objectives.

Furthermore, a budget allows a business to not only plan for expenses but to analyze expenditures and make adjustments as needed.

When creating an initial budget, do your best to estimate your income and expenses as accurately as possible, but know that the figures will change due to many factors.

Budgeting is a trial-and-error process, and the accuracy of your estimations will improve as you continue to follow the budgeting model.

When a business has a budget, it provides a fluent tool that should change according to the needs of your business.  As your revenue expands, your budget for expenses will normally change.

Although some people may be able to develop and maintain an effective budget, it may be worthwhile to employ an in-house or outside accountant who has the necessary experience.

Don’t risk the consequences that can happen to your business from not having a budget.

 

David Zubler has an accounting degree and computer science degree with high distinction and has experience as an accounting manager and controller in manufacturing, and has owned his tax/consulting business since 1990.  David Zubler is the founder and president of Your Tax Care.  The company provides business and tax education to the public at its website, YourTaxCare.com.  David can also be contacted by email at zublerdavid@gmail.com.