You already understand the depth of care and attention you must pay your business to ensure its success. You probably know every fine detail of your products and services, recognize your clients by face and name, and can anticipate a typical workday's numbers just by the day of the week it is. However, as important as all of these business aspects are, you may be overlooking the one that could undermine your future growth and success. When you want to ensure your company's longevity and profitability, you should draft a business budget for these important reasons.
1) Keep Track of Your Money
Arguably the most important reason you should draw up and maintain a business budget is so that you can tell how much money is coming in and out of your company each day, week, month, and year. You cannot simply take a guess when it comes to knowing how much money you are taking in, how much you are spending and whether or not you have enough to build your business. When you draft a budget, you can keep track of your cash flow and understand exactly how profitable your business is or is not.
2) Know How Much You Can Spend
A big part of running a successful business calls for you to spend some of the money you make. If you are not keeping track of this money, you could end up spending too much. Adversely, without a business budget, you may spend too little and short change your business when it comes to purchasing or investing in necessities like:
- Inventory or new products
- Office supplies
- Vendor services
- Paying utility expenses
- Real estate like a new office or land on which to build a new store
When you have a budget on hand, you will know your numbers and understand what you can spend without going broke.
3) Know If Your Business Is Growing or Shrinking
Without a business budget, you have no real way to gauge whether or not your business is growing or losing money. Again, taking a guess on how much you are bringing in and spending can lead to you to over or underestimate your business' overall health.
When you have a budget with the numbers accurately recorded, you will know if your company is doing well and meeting your customers' demands or if your business is actually shrinking and losing vital accounts. Depending on these numbers, you can adjust your budget as necessary and ensure the future of your business.
4) Compare Your Business Annually
It is not enough for you to operate your business on a day-to-day basis. You must know how your company is doing on a yearly scope and whether or not you are doing better than the previous year.
When you have a business budget, you also have a basis to compare your company on an annual basis so that you can get an idea about how well you could perform next year, as well as how this current year may play out for you. This scope will give you a basis for either making cuts and readjusting your business plan or expanding to reach new markets and customers.
5) Secure Bank Loans and Other Business Financing
Having a budget on hand can also help you secure a bank loan if needed. When you go in to meet with the bank's loan officer, this individual will want to know what kind of money your company brings in and how you spend it.
If you do not have a budget to show this person, you could be turned down for the loan, simply because the loan officer may be unable to trust you to give accurate information. With a budget, however, the officer will have factual evidence of your company's profitability and know if you can repay a loan without defaulting.
6) Direct Your Staff Better
Having the numbers on record not only benefits you. It also benefits your sales staff. You can use your budget to gauge the direction in which you should be steering these individuals so that they can bring more money into your business.
In fact, your staff's first priority should be ensuring your company's future success. When you know your numbers and understand from where the money is coming and going, you can motivate your team to sell and serve customers better. You can also show them where they need to improve their customer approach and level of service.
A business budget should be one of the most important details to which you should pay attention. Along with knowing your customer base and the products and services you offer, you should also be well acquainted with the profits and expenses your company routinely undertakes. These key reasons can convince you to keep a budget and use it to your advantage.