Whether your enterprise is a small business or a large multi-billion dollar corporation, it’s important to have a budget. Creating a budget is the foundation for meeting your business goals and objectives.
Spreadsheets are helpful, of course. But QuickBooks – Canada’s #1 accounting software for business – has the ability to prepare and monitor budgets quickly and easily, without duplication of effort. That QuickBooks feature alone will save you time, money and frustration (lots of frustration).
What is a Budget?
A budget is a detailed financial plan that monitors and controls the income and expenses of an organization. Budgets are tools that quantify future expectations and actions relative to acquiring and using resources, such as inventory, staff and financing. Simply put, a budget is a plan over time of how much you are going to spend and how much you are going to earn. It’s all about control.
A budget establishes benchmarks for comparing actual results versus planned results. Successful businesses estimate both revenues and expenses for a specific period of time. This allows business owners to measure progress and gauge the financial health of their company. Targets should be monitored and reviewed regularly. Businesses in certain industries monitor actual results versus planned results on a daily basis, while others may opt to review results weekly or monthly.
Budgets Help Control Expenses
Knowing where your money is being spent enables you to determine if the required funds have been allocated and are available to carry out a specific business function. Your bank balance is not the same as available funds. Budgets help prioritize what’s important and must be done to achieve goals versus what’s nice to do. Having a pre-determined budget is also helpful when unplanned expenses occur, such as a critical piece of equipment breaking down, forcing you to replace it prematurely. Reviewing your budget will help you prioritize spending in other areas.
Budgets Create a Financial Road Map
Once you’ve created a budget, refer to it regularly and make changes as required. Changes may be gains or losses in exchange rates, for example. At any point in time, you can compare actual performance to your budget. Doing so, helps you gain control of your financial future and make better business decisions.
Cash Flow Management
The budgeting process also helps manage cash flows. Knowing when outflows are greater than inflows provides you the opportunity to investigate and take the necessary steps to shrink or close unwanted gaps.
The budgeting and planning process is almost always a mix of pain and exhilaration, but it is a process that forces you out of your day-to-day activities and into a strategic position where you can preview the future.