Reasons Why Budgeting is Essential for Business Success

The title of this article might strike most readers as blindingly obvious. But of course, a company – any company – needs to have a budget. And this is all because of the essential and eternal truth that any business needs to manage its expenditure against its income in order to ensure what needs to be paid for can be paid for without profits suffering. However, for many small business owners, working out the proper way to effectively budget can be a bit of a daunting task – as well as one which is often neglected!

fastFACTR, a company specializing in invoice factoring for small businesses, say that their services are most profitably used when incorporated into a stringent budget plan. Given the fact that small ecommerce ventures typically only have limited amounts of reserve or startup capital, the absolute best advice here is to get into the habit of budgeting when it is still relatively simple and then plan for the more complicated budgeting which will come with business success.

The Importance of an Annual Budget

Long-term growth for a small business is normally reckoned over a timescale of years or financial quarters. Accordingly, the most important form of budgeting of all is the annual budget, which is something every small business should try and put in place from the get-go. A very common problem with small businesses is to fail to plan over these longer timescales. Right at the start, it might seem that an annual budget is not only useless but that you don’t, at the beginning, have the market and sales data to actually create one. This is not true, and you should certainly have an annual budget from day one.

The importance of an annual budget lies in accounting for the future. If you run a small business, then you are going to want to grow. And growth might come sooner than you think, bringing with it new costs that you need to ensure your increased revenues will be able to cover. And if your projected revenue increases do not cover the costs of growth, then you need to plan for that too.

Benefits of Budgeting

Such is the importance of an annual budget. Here follows then some more general reasons why budgeting is absolutely essential for your small business:

A Quick Reference for Spending

You might think that budgeting takes up time which could be better spent making money. This might be true initially, but once you have the budget, it actually speeds things up. For example, you can quickly check a budget to see if you can cover the costs of a new investment, allowing you to act fast.

Allows You to Plan for Slow Periods

Another great advantage of having a budget is that it will show you when the slow periods are coming up, as well as how much money you will have during these times. Consequently, it allows you to plan for these periods and avoid getting caught out.

It Could be Required to Obtain Financing

If you are looking to acquire a business loan, then those offering the loan are going to want to see your budget. Not only will a rigorous budget inspire confidence on the part of your financers that you can pay back any loans, but it will also allow you to plan for the financial impact of those same loans.

Given the many advantages of creating a rigorous – and annual – budget right from the start, it is actually quite a wonder why so many small businesses neglect to do this until later. But then again, most small businesses fail within the first few years. Go figure.