3 Reasons Why a Budget is Important for Your Business
- Jun 18, 2018
- 2 min read
Entrepreneurs are often told that a budget is an important tool to use in managing their business. However, many don’t know why it’s important. Maybe you set a budget at the beginning of the year and never hit any of the numbers. You wonder, “what’s the point?” Or, you set a budget and always come in over on revenue and under expenses, so you think, “I can do this without a budget”. Budgeting takes time and a lot of mental energy that is hard to drum up sometimes. So, why is it important? Here are three reasons why a budget is important for your business.
#1 – A budget (that is shared) gets everyone on the same page
If your sales team thinks their goal is to grow sales by 20%, but your budget shows a 30% growth in revenue, you can work together to determine what is reasonable and either increase the sales goals, decrease your budgeted revenue, update pricing, or meet somewhere in the middle. If you don’t set a budget and share it with your team, then everyone may be heading in different directions. You don’t have to share every piece of the budget with everyone, but your teams needs to be involved in the process.
Tip: Share key budget metrics with appropriate team members. The sales team should know and understand sales goals, marketing spend, and the effects of sales on the rest of the budget and how it affects other teams.
#2 – A budget helps you to see changes you need to make ahead of time
When you set your budget at the beginning of the year, you can see problems or other issues to address ahead of time. Your budget helps you to plan out the year, understanding when you will hire, if you will need to move to new office space, will including your expected sales growth and the corresponding staffing, equipment, materials, space, how you will handle cash flow shortages or windfalls.
Note: if you’ve updated your budget for sales growth and the corresponding increases in staffing, equipment, space, or other usage, and you see your net profit margin is not in line with your expectations, you can make adjustments. You may need to change your fee structure, increase pricing, or hire a different level of staff. Analyzing your business’ expected growth and change through your budget can help you to make the right decisions before it’s too late.
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