Some business owners take budgeting and forecasting seriously, while others avoid it altogether. However, budgeting can be a powerful tool for small businesses, providing a forward-focused view of their financial agenda and outcomes. In this article, we will explore the various advantages of budgeting for small businesses and how it can contribute to their success.
- Goal Focus and Commitment: Budgeting helps steer the business by enabling owners to focus on goals and commit to them in numbers. Small business owners often get caught up in day-to-day operations, which can cause them to overlook long-term growth prospects. Budgeting compels owners to think about where their business is heading and commit to achieving their goals.
- Accountability and Expense Management: A well-planned budget provides a framework for accountability, ensuring that everyone in the business is responsible for their commitment to the future. This promotes better expense management and fosters a sense of responsibility among all stakeholders.
- Proactive Cash Flow Management: A budget can easily be converted into a three-way forecast, which helps in proactive cash flow management by indicating cash requirements over an extended period. This tool is not only critical for the business but also essential for effective banking and finance relationships.
- Identifying Cash Flow Management Strategies: Forecasting can demonstrate the impact of or need for cash flow management strategies, such as improving debt collection or optimising the stock ordering process. Without a budget or forecast, these issues are easily overlooked until they become problematic or urgent.
- Understanding Business Drivers: Budgeting helps business owners gain an understanding of the driving forces and factors behind the business’s growth and success. This understanding ensures a focus on profitable activities supported by annual budgets and cash flow forecasts.
- Management Tool for Succession Planning and Exit Strategies: Budgeting is a critical management tool for succession planning and exit strategies. It enables owners to set long-term high-level forecasts that demonstrate the business’s financial goals and provides flexibility to sell the business instead of closing it if personal circumstances change in the future.
- Goal Setting and Organization: Writing goals down is a proven success strategy. A budget is a clear representation of your financial goals. It allows you to review achievements, identify opportunities for improvement, and ultimately helps you run a more organised, efficient, and profitable business.
- Time Commitment and Efficiency: While the initial time commitment for budgeting may seem significant, ongoing tasks associated with it are more manageable when dedicated admin blocks are set aside. A smooth running, profitable business is generally an efficient business. Focusing on finances can help identify ways to free up time.
In conclusion, with the availability of cloud-based accounting software, implementing the budgeting process and sharing relevant information with internal staff or outsourced contractors is now easier than ever. If you need help creating a budget and forecast, reach out to your local Accru Advisor. They can assist in streamlining processes to contribute towards a more profitable and viable outcome for your business.