The answer to this question is a most definitely big Yes!
Compiling a budget is one of the most useful tools any business owner could implement into a monthly, quarterly, or annual report.
If we do not track something, how can we control it!
What is a small business budget?
A budget for your small business is a financial roadmap that lays out expected income and planned expenses. It’s your strategic money guide, helping you allocate resources wisely. By forecasting revenues and detailing costs, it ensures you can cover daily operations, pay bills, and invest in growth. Think of it as your financial GPS, steering your business away from cash flow hiccups and towards profitability. It’s a crucial tool for making informed decisions, seizing opportunities, and maintaining financial health. In essence, a well-crafted budget empowers you to navigate the financial terrain, fostering stability and achieving business objectives.
So, what would the key benefits be in preparing a budget? Let’s look at some of the key reasons why you should prepare a budget for your business.
Top Ten reasons why you should prepare a budget for your business:
1) Prevents overspending
2) Can assist in working to long term goals
3) Build in a contingency as an emergency fund, so if the unexpected should happen, funds are available.
4) Can reveal spending habits
5) Reassurance to stakeholders that funds are being controlled and monitored.
6) Ability to measure Return on Investment
7) Can highlight if prices are increasing, which may lead to business having to raise their prices
8) Having the fixability and knowledge if something is working or not
9) Setting sales goals to incentivize the team
10) Improve decision making
These are just our top 10, however there are many more.
Can preparing a budget improve decision making?
Let’s consider number 10 (Improve Decision Making) in more detail. So why does budgeting benefit business owners in decision making?
Let’s imagine we have budgeted £10K for marketing in the financial year 2023/2024? The aim of this was to attract 5 new clients per month.
Upon or 6 monthly budget review it has been highlighted that 5K has been spent and the new clients per month averaged more than 5.
Not only are we on budget but we are exceeding our budgeted number of new clients. Our marketing strategy is a success, and from this we
can build with the knowledge and figures and then decide, if there was capacity to do so, increase the marketing budget to attract more new clients.
Flip side, the advertising and promotional budget amount was 5K for the financial year and highlighted at the 6 monthly review, due to lack of expertise
and activity, only 1K had been spent with no measurable return on investment.
This analysis provides with what is working well and what is not. From here we could potentially increase the marketing budget, by decreasing the advertising
and promotional budget and transfer to the amount to our marketing team to keep up the good work.
Without a budget or forecast how would we have this information? We probably wouldn’t and then continue to spend our hard earnt cash into something that was
underachieving.
More now than ever, households are working on a tighter budget due to the recent cost of living price increases. So surely it makes sense to implement a budget process
into your business.
How often should a budget be reviewed?
A question we are asked a lot how often a budget should be reviewed?
Firstly, I would compile a 12-month budget, and as a MINIMUM review this on a quarterly basis, e.g. every 3 months!
Trust me on this, the buzz you get when a budget is exceeded is amazing, and really gives you the oomph to go that much further!
Where can I get help on preparing a budget?
If you would like to find out more about budgeting or any advice on where to start please click on the BOOK A CALL button!