Why Budgeting is Important for Business: 3 Reasons You Need One


Ask any small business owner what a budget is and they will likely respond with something like this: a financial plan for a firm's future that projects revenue and expenses. Ask them if they have one, however, and you may get a variety of excuses why they don’t. The truth is, many entrepreneurs far underestimate the value of a budget in their business.

why budgeting is important for business

So, Why is Budgeting Important for Business?

A solid budget serves as a road map for a business owner to ensure they are on track to meet their goals as they navigate through each month, quarter and year. And budgets don’t have to be complex to be effective. Out of the gates, a simple estimate of monthly revenue and expenses is just as powerful as a fully integrated financial report that includes a profit and loss, balance sheet and statement of cash flow. The point is to establish definitive sales and spending targets that you can use to gauge the success of your business strategy. Aside from being a benchmark, a budget is also an important tool that can actuate change.

Let’s Be More Specific

1.  Curbs unbridled spending

Owners and department managers will more carefully consider their purchases if there are spending limits – and accountability if they exceed those limits. However, disciplined spending doesn’t mean deprivation. The beauty of a budget is that it illustrates how the numbers are connected; how an increased expenditure in one department can be balanced by a decrease in another. This understanding incites managers to work together and avoid overspending without sacrificing necessities.

2.  Motivates employees

It’s important to communicate the company’s goals to your team, and make it clear that the budget makes it possible to fund those goals. A simple statement like, “We need to make $X in sales and spend no more than $Y in expenses in order to have the funds to expand into Z market by the end of the year,” gives employees a quantifiable goal on which to focus. A budget may even inspire staff members to think outside the box for solutions to sales shortfalls or expense overages in an effort to help the company hit its targets. The result is a unified, engaged and committed team, which in turn, reflects on the company.

3.  Keeps stakeholders on the same page 

Of course, investors, shareholders and other interested parties want your company to succeed, but they also need to protect their interests. So when you want to expand your business in any way (which always results in increased expenditures), it’s in your best interests to have a solid budget in place to get stakeholders on board with your goals. When all parties are in agreement with the company’s objectives and the plan for meeting them, it’s much easier to gauge progress and work together to keep the company on track.

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Get Started on Your Budget

The question isn’t so much, “Why budgeting is important for business?” but rather, “How do you get started on a budget for YOUR business?” Once you begin using a budget, you will realize additional benefits unique to your company. If you're new to the budgeting process, stay tuned for our upcoming series on budgeting for tips. Meantime, the Small Business Administration offers some useful tips for crafting a business budget. Don’t delay in using this important tool to keep your company thriving and on course.

Driven Insights Advantage

Need additional help? Talk to us about how we can lend a hand with creating a budget and other valuable reports for your business. Outsourcing your accounting function frees you from tax-time stress and empowers you to make better business decisions.

You can see how our accounting services are structured in the graphic below.

Tired of making decisions in the dark? Reach out 888-631-1124 / or read about our services to learn how we can help eliminate your finance function from the list of things to worry about.

Dave Robinson

Written by Dave Robinson

Driven Insights founder, writes about informing business decisions and building enterprise value through financial management.

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