By Analytix Editorial Team
For various reasons, many small and mid-sized businesses don’t budget.
Below are five reasons why budgeting leads to financial stability and success of your business.
1. Predicts cash flows and avoids surprises
Since you build a budget from your forecasted operational data, it consists of expected ups and downs in your revenues and expenses. A budget is especially helpful if you have a seasonal business or your revenue stream comes in huge chunks followed by long periods of no revenue. A budget helps you plan for when your cash levels will be low.
2. Shows bankers and investors your payback plan
A budget signals to potential lenders that you have planned and know what it takes to pay a loan back in a timely fashion. A budget also gives lenders a payback plan that is backed by substantial and reasonable facts.
3. Quickly highlights areas that need improvement
A budget helps you quickly compare actual revenues and expenses every month. With a budget as your roadmap, you can revise the variance estimates between revenue and expenses in a timely fashion to ensure they do not escalate to a large variance. You can revise your budget to take into account major changes in your business.
4. Helps in smooth running of operations
A budget helps you maintain an overview of the big picture. By comparing weekly, monthly, or year-on-year numbers, proactive managers can use a budget to guide their business decisions and even look for ways to improve them. A budget, combined with a forecast, is a versatile tool for continuous improvement in the financial success of your business.
5. Helps to project the future and take actionable steps
A solid budget guides you in discerning if the demand for your business is growing. A budget helps in understanding the amount of inventory you can afford to carry and the best time to make an investment to expand your service offerings.