What is a budget?

**Without a good budget, it will hard to track your company’s growth and performance.**

Budgeting

A budget is a detailed plan that is used to track income and expenses to make operational decisions. With a budget, you will be able to estimate future revenue and expenses in detail, so that you can see whether you’re on track to meet financial targets for the month, quarter, or year.

Budgets contain the information you have collected but they are typically used to look forward into the future. Income is based on projections and estimates for the periods of time they cover, as are expenses. Think of your budget as a point of comparison – you run your actual numbers against your estimates to determine if you’re over or under budget. From there, you have the ability to make informed business decisions and change your course accordingly. For example, maybe you find that your expenses are over budget for the quarter, so you may hold off on a large equipment purchase. It is best practice that businesses create both short (monthly or quarterly) and long-term (annual) budgets, where the short-term budget is regularly adjusted to ensure the long-term budget stays on track. Budgeting for a business is a large task, which is why you might need assistance. Creating a budget will involve analyzing costs, estimating revenue, and projecting cash flow.

Why is it important?

Budgeting is an essential process, especially for small businesses, as it allows business owners to estimate and allocate money for different operations. Money can be tighter within a small business; with less wiggle room for budgets and challenging costs, therefore keeping track and budgeting can be the difference between making no growth, some growth, and a ton of growth! Preparing a budget gives you a clear idea of the money that can be used to achieve business targets and ensures that there is enough on hand to handle a crisis or downturn in the market and acts as a safety net for when things don’t go to plan. A few of the top reasons why small businesses fail include pricing and cost issues, losing focus and running out of cash. These issues can be solved by having a realistic budget in place.

For small to medium business, it can be difficult to make estimations for the budget for the whole year as the early stages of growth for a company are often unpredictable. We recommend that you focus on creating smaller budget estimates for two or three months and keep reviewing and learning and gathering information about how the business is performing.

A business budget encourages you to think long-term and look beyond the next week, or month to the next year, and even the next five years.

Creating and maintaining a budget can benefit your business to:

Forecast what money you expect to earn.
See the difference between your plan and reality.

Maximize efficiency.
Supports business targets and planning.
Shows leftover funds that you can reinvest.
Predict slow months to keep you out of debt.
Estimate what your breakeven point is.
Plan to make higher profits.
Provide a look to the future that you can plan for.

A good budget will make managing the finances of your business a lot easier and more efficient. You’ll be able to save time and money down the line once you have this set up and managed. It will help ensure that you are spending money in the right areas of the company and doing so at the right time to stay out of debt.