Why a budget is essential for any business

As tax season is almost upon us again, many business owners have their budgets on their mind… and rightly so! However, unfortunately, all too many business owners don’t keep a carefully controlled budget throughout the year and find themselves with more than a few nasty surprises at tax time.

If you, like many business owners, don’t always adequately plan your budget or only really engage in tax planning alone… now is the time to make a change!

At Lawrence, we know that planning for all aspects of your business and that preparing a budget for the upcoming year (alongside tax planning) is one of the most beneficial things that you can do for your business.  And whether you’re the owner of a large corporate business or a smaller family owned business, you can experience some immediate benefits of a business budget.

Here’s why a budget is essential for any business:

1. You’ll be better able to spot changes you need to make (before they’re right in front of you).
   When you set a budget at the beginning of the year, you can spot problems and issues as well as pivot-points in your business well ahead of time. This means you’ll know when you need to hire, when you may need to move, where your sales will peak and trough, any equipment or service upgrades you may need and, very importantly, how you could manage if you were to hit a cash flow crisis. Analysing the expected growth, decline or change will help you make the right moves before it’s too late to do anything.
2. Your budget gives you a basis of measurement.
   No business owner wants to fly blind. When you use a budget to help manage the course of your business, it’s up to you to determine whether or not you’re on track based on the measureable outcomes that you set for yourself. You can then routinely refer back to this measurement throughout the year to guide your decisions (rather than hoping for the best at tax time without 100% certainty of what to expect).
3. You’ll have a clear picture of staff performance.
   Staff Key Performance Indicators (KPIs) can be based on budgeted figures and with a budget in place, you can compare KPIs to actual figures. This will also help you understand the level of staff required for the coming year. In addition, you can also share key budget metrics with appropriate team members to help them understand their goals and the greater impact of their role on the team as a whole.
4. You can assist your financing options.
   Some financing options will require you to give an estimate for the following year, and an accurate budget can give then information that financers require. It’s crucial that your budget be individualised and accurate to give you the best possible outcomes, so this should never be guessed, ignored or left to chance!

Take a moment now and consider your business… what would the implications be if you weren’t able to meet your obligations for payroll, equipment, training, suppliers, rent/mortgage, loans, professional services, advertising/marketing or insurance?

And this is just a short list that accounts for keeping your business open, let alone growing or expanding your business in any capacity.

Without budgeting, your business may be missing out on vital sales opportunities or even make poor decisions and drift your business in the wrong direction.

Once you have created your first budget, you can then put it into use and get a real sense of how it can help keep your finances on track… from there, you may want to then lay out your spending plan or budget for further down the road. This will allow you to easily forecast for where finances may be tight and where you may have extra cash flow. Another benefit to anticipating the highs and lows of your finances is that you’ll know how much you’ll need to save/borrow and where you can spend on things like a new vehicle, staff retention perks etc.

And, of course, a budget is an adaptive plan – it should never be a ‘done once, never reviewed or revised’ document. It should be regularly reviewed and adjusted to account for any shortfalls (and to allow it to adapt as your business changes to meet market demands).

_______________________________________________________________________

Do you need assistance with your business budgeting?

We cannot stress enough how important it is. As Hilary Hinton “Zig” Ziglar famously said, “If you aim at nothing, you will hit it every time!”

At Lawrence, our diverse team of specialists will help you understand your business books and plan for the future.

Contact us today for an obligation-free chat about your business budget.

This article is general information only. It does not give business, accounting, taxation, financial planning or other professional advice or service. It does not consider your specific situation, objectives or needs and if personal advice is required, a detailed analysis of your particular circumstances would need to be sought. Please see our Privacy and Disclaimers page for further information.