5 Reasons Why A Budget Is So Important To Your Business

By Sharon Casagrande

September 30, 2020
Budget Planning and Cash Flow Forecasting

If the word budget scares you, and the thought of preparing a cash flow sounds boring to you, you are not alone.    And you might think, “Why should I work on a budget for the next 12 months when I don’t know what’s going to happen next week?”.  However, preparing a budget is so much more valuable to you than just an excel document.  Here are 5 reasons why it is so important.


1. Going through the process helps you set and quantify goals


Preparing a budget forces you to look at what you want your sales to look like for the year ahead.  If you want to make $3m in sales next year, how are you going to do that? Once you have set your goals, you now have to think about how you are going to achieve them.  What is your average sale value, what is your conversion rate, how many leads do you need to generate? 


Break down the amount that each team member will contribute to the total so you know exactly how the sales will be generated.  Budgets should be realistic and if you can break down the numbers to show how you are going to do it, then it will be achievable.


2. It provides accountability


Once you have set your goals, they can be communicated to your team and reviewed on a weekly or monthly basis.  Your team are going to be the ones helping you achieve your goals and they need to know how they can help you do that.  How much does each team member need to make in sales to contribute to the overall budget?  


Your budget shouldn’t be saved in a file never to be seen again.  It should be reviewed at least monthly to compare to your actual results.  If you haven’t achieved your target, what could you do differently to improve next month?


3. You can identify unnecessary costs


I haven’t prepared a budget yet where an unnecessary cost hasn’t been identified. For example, quite often subscriptions are set up on a monthly direct debit, but are not reviewed regularly to check whether you are receiving any value or you may be paying for too many users.  Could you switch to a different energy or phone plan and save on your monthly bill?  Are you doing things as efficiently as possible? Is there something that could be outsourced rather than doing in-house?  There may be changes you could make to free up time so that you can work on your core business.


4. It allows you to answer those “What if…….” questions


Once you have prepared the budget forecast, you can use it to workshop different scenarios you are considering.  For example, What if I hire another employee?  What if I open a new office?  What if there is a decrease in sales? You can play out each of these scenarios to see the impact on your cash position.  Many people go with their gut in these situations, but it can be disastrous if you don’t have the data to back it up.


5. You get visibility over your financial future


Projecting your sales and expenses provides you with the information to make proactive decisions.  In the recent example of COVID-19 where many businesses have had to close temporarily and sales have decreased, a budget can help you visualise the impact on your cash flow.  This allows you to prepare for the impact ahead of time.  If you see that you are going to run out of cash in four months, you can arrange a line of credit before you hit panic stations.  Having a budget helps you to be prepared for these situations and take action before it’s too late. 

If you need help preparing a budget for your business, please get in touch.  We can schedule a complimentary consultation to discuss your business, the current opportunities and challenges and the next steps you should take now to take your business to the next level.

We are 100% virtual.  However, if you would prefer an onsite visit, we are situated in beautiful Wodonga and service the areas of Albury, Wodonga, Griffith, Leeton and Wagga Wagga.

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