It is easy to overlook the importance of a budget, which is why so many businesses don’t bother having one apart from when they need to secure start-up funding or boost their working capital. But this is a big mistake: even the smallest of start-ups can benefit from preparing a budget, as it will help them to stay in control of their finances. Here, Thinking Forward Events review the benefits of setting a budget if you are a small business.
Operating a small company without a working budget is foolish at best and suicidal at worst. From a financial perspective, budgets help a business make plans for the future. They also act as an early warning sign if cash flow problems are lurking on the horizon. Unfortunately a significant number of micro-businesses don’t have a working budget because they don’t place enough importance on the financial aspects of running their businesses. They may have drawn up a budget at the outset, but thereafter other aspects of running their business took precedence.
Sophinna Asif from Thinking Forward Events is keen to point out that a budget does not necessarily need to be overly complicated.
"Even simple working budgets can be effective," she says. "As long as you track income and expenses, and then project these figures going forward, it will give you a good indication of how the business is likely to perform in the future and whether your planned goals and objectives are attainable. Even if you are horrifically short on time, make sure you make time to prepare a cash flow statement at least once per month."
Putting together a simple budget calculation is not as difficult as you might think. Look at your previous year’s accounts and then work out what your future income is likely to be, after taking into account any additional income generated by any proposed marketing campaigns you have planned. Once you have done this, you can check how the business is performing each month and take action if things are going awry.
"Don’t forget to include a contingency fund in your budget," warns Sophinna Asif from Thinking Forward Events. "It is important to budget for unexpected expenses as they can significantly eat into your income. And if you need professional help pulling the figures together for a first budget, make sure you ask for it."
There are plenty of budgeting software packages available for small business owners, so small business owners have no excuses.
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