Things you need to know about finance & budget planning
Your budget is one of your most important business tools. A failure in a budget can mean a failure in your business, which is bad news for business owners across the country.
With Statistics Canada finding that 49 percent of new businesses don't make it past their fifth year, the onus is on business owners to educate themselves on how best to keep their businesses lively and give them a good chance of success. A good budget is one way to do that.
So why is a budget so important? And how can you manage yours effectively?
Why your budget matters
Simply put, your budget gives you an overview of your business' real and expected cash flow, income and expenditures.
Your budget helps you to plan for the future, while the real time data you enter in your records will show you where your money is coming from, where it is going, and whether there are any problem areas to take care of. A good budget helps you to keep your goals in sight and see if they are achievable.
Your budget will also give you the knowledge you need to anticipate peak periods and slower periods in your business, allowing you to plan accordingly. So how do you get your budget up to scratch?
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How to manage your budget effectively
Budgeting can be a drag, but with Intuit finding that the biggest regret for small business owners during their first year is not upgrading their financial skills, there has never been a better time to start managing your budget better.
Try out these 5 ways to be an even better budget manager:
- Choose your software carefully - You might find a simple excel spreadsheet works for your business, or you might find your business can benefit from some dedicated budgeting software. Don't just rush in and buy the first glossy software you see - take the time to decide what you really need to keep track of your budget;
- Update and review regularly - Your budget won't be useful if it's months out of date. Set aside specific times to update your budget information and review it carefully, and stick to those times. Review the information you see in front of you - are any departments under-performing? Where is money leaking out? What are your strongest income sources? Use this information to review your business goals, and how your business is running, so you can make changes that will have a positive impact on your business;
- Go for realism not optimism - It might be tempting to predict high sales and low costs, but in the long run being overly optimistic can hurt your business. Be realistic - factor in all your costs, and allow for them to be higher than you expect. Predict your sales, but allow for them to be a bit lower than you expect;
- Look at your costs - It's easy to get caught up in sales and cash flow and forget the bottom line - if your costs are lower, your profit margin will be bigger. Take time to review your costs and see if your business is leaking money through high costs, and what you can do to stop it;
- Respond to changes - Use your budget to respond to changes in your business. If a cost goes up or a client gives you less business, use your budget to see how you can absorb and react to those changes.
Budgeting may seem boring, but it's time well invested in the future of your business.
A realistic and flexible budget can help you to run your business better, maximize your profits, and anticipate what is coming next, keeping you safe from unwanted surprises.
About the author
Tristan Anwyn is an author who writes on subjects as diverse as health, marketing, business, and SEO.