Advivo Business Advisors and Accountants explain the benefits for your business in having a budget in place.
In today’s economy, a business must always be prepared for the unexpected and should never be without a working budget which is probably the best way to ensure you remain on track with your plans, objectives and ensure your ongoing viability. Some business owners begin their operation with a wave of optimism and enthusiasm but without a well thought out budget, they often find it a challenge to create a successful action plan, without defined costs and milestones, let alone monitor how they are performing.
One of the most critical elements of the planning process is a well researched and comprehensive budget properly formatted with appropriate detail for key business drivers, income and expense categories and recognising both profit and loss and cash flow. No matter what stage your business is in, it is important to create and manage a budget. By doing this, your business will be able to plan for both future growth and also plan how to manage unexpected declines in turnover and profit. A closely managed budget can also help to identify any discrepancies early, allowing you to implement remedial strategies.
The benefits of budgeting should never be underestimated when running a business:
- Financial health: Without a budget, it is impossible for you to know the financial health of your business and whether you met or exceeded your goals. Monitoring your finances allows you to develop strategies to fix problems before they become major issues and also minimise any spending that is not part of the plan.
- Strategic planning: Having a budget allows you to develop a strategic plan since you will know the answers to questions such as whether your business can expand. Communicating the budget helps everyone in the business understand the priorities of the business.
- Obtain debt financing: If a small business looks to obtain debt financing from a bank or other financial institution, it must produce a budget to show potential lenders.
- Attract investors: If a business wants to attract investors into their business, those investors likely expect to see a budget before they commit to investing in the busines.
- Tax preparation: A budget assists with the preparation of income, sales and payroll taxes.
- Decision making: To make any decision about your business, you have to know how much money is allocated to each facet. Engaging the team in reviewing and comparing the budget with actuals can provide information that highlights the strengths and weaknesses of the business.
Yes, you still need to prepare a budget for your bank but doing it the right way will help identify the key drivers in your business and detail this in your budget. Successful business owners know the value of a budget and allocate time to create and manage budgets, prepare and review business plans each month and regularly monitor their financial situation and business performance.
Advivo client, Jane Toohey, Director at Outsource2Us said, “I always thought having a budget was something I didn’t have to do and couldn’t see the value in it. Since Advivo has helped me set one up and monitor it monthly, I now realise how important it is as a proactive business management tool.” Advivo has developed a completely new and innovative approach with the Monthly Service Programs (MSPs) to help you improve your business by managing budgets and removing the stress associated with end-of-year accounting and ongoing monthly obligations. Through our monthly servicing program, we provide effective management reporting, influence effective cashflow and ensure there are no year-end surprises. Budget preparation and monitoring is a key aspect of the program.
By taking the time now to set a budget, you will free up time in the future and give your business the best chance of achieving the rewards you want for your hard work or if need be, identify problems and take corrective action. If you have any questions or need any advice on setting up and managing a budget, the experienced team at Advivo Business Advisors and Accountants are here to help. Please contact us today.