Budgeting for Business Success

All business owners and managers set goals for their business to achieve. Setting a goal to have $1m in revenue next year, or hit a 20% reduction in overhead expenses, or complete a project a month before the quoted completion date, are all great motivators and will, ideally, make your business a financial and commercial success.

Most businesses have a budget, at least in some form, which guides the business to reach its goals. However, a lack of planning and realism when you create your annual, monthly or project budgets will have a direct adverse impact on your bottom line.

Here are three reasons why a well planned and realistic budget can boost your chances of reaching your goals for the business:

1. Cashflow Management:

Say your business is approached for a major project. The project will generate significant revenue when completed but has associated expenses which you will need to cover to complete the job. Can you, at this time, be able to accept the job?

The wise move here is not to blindly accept, but to turn to your budget. Can your business support a 20% increase in purchases, or be able to hire additional staff in order to complete the new project worth $500,000 in six months time? Are you currently ahead or behind in your other projects? In short, does your business have the capacity to accept this project? These are all questions which can be answered with your budget.

2. Mitigating Unforeseen Adverse Events:

The future is not certain, and as such, your budget should be planned with scenarios in place in case of an unforeseen event which will adversely affect your business. Having a budget scenario for a key supplier becoming insolvent, or a sharp increase in the market price of your purchases will help your business plan what to do next. Can your business still operate if your key supplier goes out of business? What measures will need to be put in place to combat this event?

Many businesses are caught off-guard and respond poorly in the face of unforeseen stress. Budgeting and planning will increase your business’ reaction time and at least mitigate the impact of an unforeseen adverse event.

3. Tracking Your Progress:

Track your actual revenues and expenses alongside your budget. Variances here will highlight the areas of your business, or your budget, which need attention. Remember, a budget is a forecast of the future, there will be minor variances which are not a symptom of a problem, but of reality. When there are large, unexpected, or unusual trends between what you budgeted and what you are spending/receiving is the time you need to find, and repair, the cause.