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3 Ways a Budget will Help Your Company's Financial Performance

By Sean M. Hugo, CPA

Budgeting, for many, is a nightmare. No matter how hard businesses and organizations try, it inevitably becomes cumbersome and difficult to create a realistic budget for your business. However, any business that wants long-term success will need a firm budget and a steady hand to guide. Often, it is too easy to push finances to the side and focus on strategy or other elements of the business. However, it is imperative to keep in mind big picture success and how finances will guide your business. 

The first step is to sit down with your accountant, and understand the budgeting process and what goals your business is trying to reach. Fiscal success is contingent upon you and your accountant having open and frank discussions about the financial health and viability of your business.

The Benefits of a Well-Planned Budget

Having a budget created will help maintain control over long-term goals and dictate overall success. If that reasoning is not enough, here are three more reasons how budget will help your company's finances.

1. Prioritize expenses

Budgets are a key factor in how expenses are prioritized, and where revenue needs to be directed in order to keep the business successful. Having year-to-year data will make it easier to draw conclusions, as well helping managers in crafting approaches to challenges or problems that may arise.

For example, if labor costs in a particular area are higher than budgeted, but new equipment purchases are under budget, a manager might requisition a new machine that helps reduce labor moving forward. In this scenario, the budget serves as a justification for a proposal.

As an account item climbs over budget, it becomes a manager's priority to control. Having hard numbers and figures make it that much easier to take creative license and problem solve where needed in order to maintain success.

2. Guide sales & marketing

A budget is key in understanding how to best allocate resources, and where the gaps are. Your budget will give you an idea of expenses, which you'll be able to compare against income. Using this knowledge will help guide marketing and sales strategy going forward, so it is imperative that everyone has the right data to work with.

Understanding the budget, and what limitations and/or growth potential exists is the only way to create an effective marketing and sales strategy that will have realistic goals for teams to adhere to. 

3. Plan future growth

Another key reason why budgets are necessary is because they are able to provide a holistic picture of your business and its financial health. Budgets are important because they provide a baseline financial overview that you can measure growth against and plan for the future with.

Budget Concept. Word on Folder Register of Card Index. Selective Focus..jpegMany companies often use budgets to plan for future business growth as well as expansion. Ideally, capital saved on regular business expenditures may be placed into a special reserve account designated for selecting new business opportunities.

In fact, budgeting is incredibly necessary for both slow and fast business decisions. Having capital on hand, and a budget established for future growth opportunities ensures that companies are able to make a quick decisions for expanding business operations. And this capital may also be used during slow economic times as a safety net for paying regular business expenses.

In either scenario, having a budget offers a sense of flexibility while simultaneously helping you understand what the limits are for business decisions. Without having a firm budget, your business is essentially flying blind and it becomes an ultimately unsustainable practice.

Work with your accountant to create a comprehensive budget that addresses your business needs while still allowing room for growth. Your accountant will be able to provide valuable insight on where the gaps are, and better methods to allocate the resources you have on hand.

For more information on budgets and how they help your company's finances, please do not hesitate to contact us.