Importance of Budgeting for Small Businesses

importance of budgeting for small businesses
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Creating a business budget can be intimating especially if you haven’t done it before, but the process to create one does not have to be difficult
Every successful business regardless of size or type of business needs an effective budget to inform good decisions
Think of a budget as a financial roadmap that outlines your goals as well as priorities and as a result, better controls over your business finances
A business that does not have a budget is left unprepared for downturns. If no cushion is built for unexpected costs, it might not be able to meet those obligations when they come due
A business without a budget might not take advantage of investment opportunities, or the ability to grow
The implications of not meeting your obligations because of poor/no budgeting are very high. For example, if you can’t meet payroll, the employees will leave or if you can’t pay insurance, your business is open to liability
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A business Budget is a Plan to:

  • Set financial goals to keep the business on track
  • Control overall finances of your business
  • Ensure the business can meet all of its obligations
  • Help with confident and accurate decision making
  • Inform the cash reserves required in case of downturns

Importance of budgeting for Small Businesses

  1. Track where you are financially and spot red flags quickly
  2. Strategic long term planning that includes expansion plans
  3. Knowing how much you can afford to hire staff, or even get into long term commitments before doing it
  4. Attract investors who can review your financials and growth projections and invest accordingly
  5. Ability to take out a business loan – your financial institution can review your budget projections and determine your ability to repay the loan
  6. Understanding the businesses’ strengths and weaknesses and strategize accordingly

If you happen to be running your business without a budget, you might find it hard to make decisions or even trust your decisions. You are probably finding yourself running in circles and not meeting your goals.
Find some time to create a budget. If you don’t know how to create one, hire an expert who can assist in this process. It will free up your time and you will have a tool that will tremendously help in decision making.

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