Why Budgeting Is Important
Creating a budget for your business, whether it’s yearly, quarterly or monthly is essential, especially if you want to see how well you’re business is doing financially. Creating a budget in advance will enable you to compare actuals versus predictions within your budget.
Having the capability of comparing actuals versus budgeted predictions allows you to make adjustments to your budget accordingly. For example if you’ve budgeted $1,000 for office supplies for the entire year and once the year is over you’ve spend $2,000, you’re over-budget on those office supplies. On the other hand, if you’ve only spent $500 on office supplies for the entire year, you’re well under-budget.
So why is this so important? Probably the biggest reason is cash flow and how well you’re managing your cash—because as we all know, cash is king in the business world if you want to stay open and profitable. If you seek investors or loans from private banks or from government agencies like an SBA loan, one of the first things they will look at is a history of how well you handled your cash flow. They will also ask you to make cash flow projections for upcoming years, so it’s important to have a handle on learning how to make a business budget and then compare those expenses to actual spending.
Image Credit (Revenues and Expenses) http://commons.wikimedia.org/wiki/File:Revenues_and_expenses.png