Why Every Business Needs a Budget

Every business owner needs to understand what’s happening with their business. Your top priority is probably your business’s bottom line, but do you understand what affects that number? And more importantly, do you understand what steps you can take to improve that number? Creating a budget can help business owners find and correct errors in accounting, establish normal spending patterns, identify discrepancies and avoid pitfalls that can drive a company out of business. A budget can ensure long term financial security and make it easier to make financial decisions. Despite the benefits, it is estimated that only 39% of businesses created a budget last year. If you are one of the 61%, consider the following ways a budget can help your company:

Increase Profits

A budget can help you identify trends in sales and make business decisions to address those changes. For example, you may need to adjust inventory, hire or fire employees, change advertising or increase or decrease product sales prices. These adjustments may require changes to other areas of the budget so you can remain profitable.

Manage Cash Flow

Monitoring spending can increase a small business’s chances of earning a profit. A budget makes it easier to identify when a vendor has increased prices or shipping charges. Invoicing mistakes are easier to catch when compared to budgeted amounts and if prices are trending upwards, a budget may allow you additional time to find substitute vendors or adjust pricing. Budgeting can help you set average monthly goals as well as ensure you have money to pay bills as they come due.

Better Allocate Funds

Budgeting allows you to avoid overspending, keep costs in line and prioritize and fund ideal strategies for business growth.

Identify Errors or Fraud

Reviewing reports monthly or quarterly makes it easier to notice errors, such as entries to the wrong accounts, or unusual spending patterns. Early detection allows a business owner to research discrepancies and make changes more proactively.

Prepare/Reduce Taxes

Changes in net income may require new strategies to save money next spring or additional estimated taxes so you do not incur penalties. Additional tax planning may be required to reduce your costs when it’s time to file.

Obtain Loans or Grants

If you are well established or your business has a large amount of physical assets, this may not be an issue. However, if you are a newer business or have few assets, suppliers, lenders and Federal Grant programs will require a business budget and projections to demonstrate that your business is stable and will be a going concern. A budget can be used to show new investors how their investment will be utilized to affect sales and profits. If you are expanding and apply for financing, the bank loan officer will request future budget projections. Moreover, if your business plan includes applying for federal grant money, then budgeting is a necessity.

Plan for the Future

Are you looking to expand, diversify, retire and sell your business? Having business goals and a budget can provide increased clarity and help you reach those goals. A budget can help you identify areas where changes need to be made. Having a budget can save time by allowing a business owner to quickly determine if different products or individual managers are meeting sales goals, are cost effective or should be terminated. A budget can help set expectations and provide insight into operations.

Contact a CPA in Golden for Your Business Budget

If you are ready to create a business budget, it is important to realize that a working budget must be flexible and react to changing conditions. A budget that only create spending limits can be damaging because it does not allow a small business to react to market conditions. A flexible budget allows you to make changes to spending or reallocate funds to provide for growth. And a flexible budget can help you identify areas where cuts can be made if sales fall below expectations. Used correctly, a budget can provide a benchmark to increase efficiency, accountability, profitability and long-term growth.

Contact Karen Schwimmer, CPA today for help creating a budget for your small business. Each business is different, and each business owner has different goals. Seeking advice from an expert about your business can help you grow!

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