Budgeting is a core component of business success.  Using budgets in business enables business owners to plan ahead and make effective use of financial resources.  Without a budget, businesses have no visibility over the future financial direction of the business.

However, despite the value of having budget, it is surprising how many small business owners don’t have one in place for their businesses, either because they don’t know how or because they don’t see the value in it.

So here are five great reasons to create a budget.

1.Goal Setting

Budgets are used to project future revenues and expenses, creating a financial pathway to achieve financial goals.

2.Strategy

Strategic initiatives require funding that is usually separate to operational spending and a budget allows identification of funds available for investing in initiatives.

3.Asset replacement

Assets age and at some point in time, need replacement. A budget allows the replacement cost to be measured and funds set aside to cover the purchase of new assets.  If the assets aren’t updated over time, operations can be impacted leading to negative impacts on the business.

4.Priorities

Budgets enable staff in an organisation to understand the business priorities set by the business owner or by management. This often ties back to the overarching long term strategy. Understanding the business priorities helps staff engagement and can increase buy in to achieving the financial goals.

5.Spending control

Budgets define authorised expenditure and allows rigorous control over unauthorised spending. To make this effective, budgets need to be measured against actuals on a regular basis and action taken to control any deviation from the budget.

Using a business or accounting software package such as Xero can help companies automate their budget process and keep track of expenses electronically. These software packages may also interface with the company’s accounting data to create a simpler process for creating and managing budgets. These software packages are usually an invaluable tool for managing financial information and reviewing information in a real-time format.

At GECA, we are experts at working with our clients to set budgets and monitor performance. If you don’t have a budget and want the benefits a budget can bring, call us now on 0800 758 766.

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