Forecasting and Budget
What is the Importance of a budget for your business?
By Willie van Dyk on July 10, 2021
The Importance of a Budget in Business (Back to Basics)
There is a wise old saying that goes, “Failing to plan is planning to fail”. It couldn’t be more accurate in business.
Sound financial planning starts with a budget. Don’t be fooled into thinking that budgets are only for cash-strapped businesses. The most successful companies can achieve their goals because they keep and maintain their budgets.
Here is what start-ups need to know, and established SMBs need to remember, regarding the importance of a budget for business.
What is a business budget?
A budget is a financial document used to estimate and plan future income and expenses. When you prepare a budget, you can see how much money you expect to make and how much you need to spend.
The purpose of a budget is to give you a realistic view of your financial position, enabling you to visualise your goals.
There are several types of budgets. Most companies prepare an annual budget and break that down further into quarters and even months.
Pro tip: By breaking down your budget into quarterly goals, you maintain the flexibility to adapt to changes in the market responsively.
At the end of a financial period, you can look back on your budget and compare those figures to what you achieved to measure your success.
The Three Main Benefits and Importance of a budget
1. Monitor your organisation’s profitability
A budget creates a framework to evaluate the financial health of your organisation. It allows you to rapidly identify bleeding points in the business and address them before they spiral out of control.
2. Keep your business goals top of mind
It maximises managerial efficiency. A budget helps managers focus their attention on the organisation’s key strategic objectives to meet their business goals.
3. Evaluate staff performance and ensure accountability
A budget improves communication and the ability to coordinate business activities. This allows you to monitor operations and allocate resources effectively. Involving your employees when setting your annual budget is a great way to motivate staff and get everyone’s buy-in to the company’s vision and goals.
Who Is Responsible for an Organisation’s Budget?
Traditionally, a Chief Financial Officer (CFO) takes care of budgeting and financial forecasting. The CFO assists with planning the company’s strategy for future growth. This includes developing processes that will measure the organisation’s overall business goals.
The CFO implements operational best practices in the business using a budget to increase productivity and profitability.
Call out: Fortunately, the duties of a CFO can be successfully outsourced (at a fraction of the cost of an in-house resource).
Outsourcing Your Organisation’s Budget and Financial Planning to a Virtual CFO
Not all businesses can employ a full-time CFO . Often, we see the owner or CEO performing these duties, which can be a huge burden. Not to mention that the financial integrity and success of your business rely heavily on your financial competence.
Thanks to services such as a virtual CFO you can enjoy the benefits of increased flexibility while keeping your overheads low.
Perhaps you don’t need a CFO at all, but you just want a professional to guide you through what your numbers are telling you. Give yourself peace of mind by having a qualified financial accounting professional—and fellow business owner—share his expertise.