5 Reasons Your Business Needs a Budget
Yes. You need a business budget.
“I run things by my gut. I don’t need a detailed business budget.”
If we had a nickel for every time a client said that, we could all retire now to a sandy beach. Contrary to what that hotshot entrepreneur may believe, every business needs a highly-detailed budget. Not only does it tell you that most crucial and basic of facts – where all the money is (or isn’t) – it provides guidance on employee performance, allows for mindful benchmarking, and allows you to plan for the future. If those broad strokes aren’t enough, here are 5 reasons why a clear budget is arguably your most important business tool:
Your employees will know what to do (and why they’re doing it)
Your team will be at its best when it has clear goals and well-articulated strategies behind them. Many companies give their employees sales targets but not necessarily the reasons for them or a profit margin within which to operate. Miranda in sales will have a much greater impetus to meet or exceed her targets if she understands the scope of the company’s goals and how she fits into the larger picture.A budget also provides metrics by which to benchmark your staff.
Without that roadmap, you have no way of knowing if targets will actually cover costs, and, therefore, if your team has the right to-do list. If Bob consistently sails past his monthly quota, maybe his goals aren’t high enough. Or if he struggles to meet it, the numbers may need a downward adjustment. A budget is a great way to make sure everyone’s singing from the same sheet of music.
You will know where you’re going (and how to get there)
Ambition is a powerful drug. It can propel you to great heights and let you soar among the clouds. But it can also numb you to financial realities that may stunt your company’s growth. A budget ensures that the loftiest of goals align with actual numbers.Want to double in size next year? Great. What are the metrics that will get you there? Is that the right amount of expansion? How many new customers do you need? Do you need to staff up? What’s the balance between those two things that will get you on the road to success?
You will know where the money is
A budget is a fantastic exercise to understand how you take in and spend money. A well-made, bottom-up budget lays out every line item in your entire business and shows where every dollar lives.Do you need all those subscriptions that no one reads? Are you spending too much on outsourced services when your in-house team has the skills to take on those duties? Are you spending too little on staff development? How do revenues and expenses interact? The budget process gives a clear picture of the current landscape and allows a more accurate view of the future.
You can plan for upcoming events
Budgets are typically set at the beginning of the year, which forces your team to consider what’s coming down the road in the next 12 months. Is your business cycle defined by the seasons? Is the spring huge and winter dead? Or is it all hands on deck at Christmas and the summer is as lazy as your cat in July?Are there clients who you know now will be leaving in the near future? Talk through how you plan to compensate for the loss, be it through cutting costs or adding more to the pipeline. Whether the winds are literal or economic, a budget can be the lighthouse that guides you through the storm.
You are too big to fly blind
Contrary to popular belief, you don’t need a multimillion-dollar company in order for very-detailed budgets to be essential. Though the scale may vary, even a small shop has many of the same financial needs and questions as the Fortune 500. Benchmark yourself against your projections and see where you landed. From there, work out solid goals for growth or an action plan to offset adverse events.You may have started this business with nothing but gut instinct and a credit card, but do yourself and your staff a favor – press the pause button, sit down with your numbers, and make a budget. Time spent now will pay off in reduced stress and increased productivity later.
Related video from the“Profit Points” video series.
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