Why Creating a Budget Is Essential for Success
Many people hear the word “budget” and cringe. As an entrepreneur, it is important to understand how critical creating a budget is for your business. According to a 2019 article in Small Business Trends, 82% of businesses fail because of cash flow problems. The failure rates of new businesses started in 2014 were as follows:
20% failed to make it to their second year
30% failed to make it to their third year
38% failed to make it to their fourth year, and
44% failed to make it to their fifth year.
Here are some benefits of making a budget and managing it:
A budget helps to control spending by seeing what’s available beyond your cash balance.
Impulse spending can be prevented by avoiding spending on anything not budgeted for.
If you need a loan for your business, you’ll have a better idea of how much you need and how to best schedule the loan payments.
Your chances of business success will increase with a budget.
You can see future revenue shortfalls so that you can take proactive steps to boost sales.
You have a better idea of your profit level so you can make pricing changes, tax predictions, appropriate compensation, and other strategic changes.
You can plan for large expenses, and time them better for cash flow.
Don’t have a budget yet? Getting started with one is easy. If you’ve been in business for more than a year, begin with last year’s actual figures and then adjust for the growth and changes you want. The numbers can be input into your accounting system so that you can get reports that measure actual progress versus the budget numbers. You can then make appropriate business decisions based on your variances.
When you set aside some time to create a plan, you really can enjoy the freedom of knowing you’re on track to meet your goals. Please contact us to find out more.