Budgeting Is Key To Business’ Financial Success
One of the most important tools an entrepreneur can develop for a business is a budget. Budgets allow a business owner to not only plan for expenses, but to analyze expenditures and make changes according to the needs of the enterprise.
A budget also allows a savvy entrepreneur to plan for future financial needs, such as emergency repairs, improvements and expansion without the need to rely on credit or loans. Budgets can be applied to any organizational level at any time; with the vast benefits that come from sound financial management, it is clear that developing and implementing a budget is a worthwhile activity for any entrepreneur.
Developing an accurate budget is a critical component of financial success; that being said, a budget is a living tool that should change according to the needs of your business. When developing an initial budget, do your best to accurately estimate your income and expenses, but know that the figures will change as expenditures rise and fall. For example, if you overspend on office supplies but overestimate the cost of your utilities, feel free to adjust the numbers in the budget accordingly for that month – you didn’t do anything wrong! Budgeting is a trial-and-error process, and the accuracy of your estimations will improve as you continue to follow the budgeting model.
When developing an initial budget, it’s also important to make sure that all of your anticipated income has a purpose. Uncategorized funds are often the dollars spent with the least discretion; don’t leave leftover money unaccounted for because you don’t have a set expense to match it. If you find that your anticipated expenses are less than your income, plan to save the remainder in a “rainy day” fund that could be used for future expenses, both planned and unplanned. Even if it isn’t very much at first, planning to save extra funds allows you to create a constantly growing base of security that helps combat the cycle of financial uncertainty.
After the budget has been developed, it’s important to analyze your actual results at the end of each month. Compare your expenditures and income to the budget you planned, and try to develop a sense of how you performed in relation to your budget goals. In general, your budget should show that your income exceeded expenses, commonly referred to as being in the black; that being said, there are many reasons that expenses could exceed income, leaving you in the red. Should your expenses exceed your income, include the deficit as a budgeted expense item for the next month, and plan to tighten up your expenditures in an effort to “pay back” those funds to the budget.
Budgeting can be a complicated and stressful process, but overall the positive benefits greatly outweigh the limited negatives.
Whether applied to a project, department or the entire organization, one thing remains consistent: Entrepreneurs who develop and follow budgets are likely to be more successful than those that don’t.
(You can also view this blog in the Rio Rancho Observer)