Why Your Business Needs a Budget
The bottom line on why to draft a budget for your business is that it will help you figure our how much money you have, how much you need to spend, and how much you need to bring in to meet business goals. But there are other reasons, too. Bankers and other financiers may want to see a budget when you ask for a loan. Employees should also be privy to the budget so that they understand where the business is going and are motivated to work harder. "It would be stupid not to share this with employees. Everybody should know what the goal of the company is. It's a group goal," Butcher says. "Don't expect your staff to meet your goals if they don't know what they are."
Budgets can also help you minimize risk to your business. A budget should be created before you sign a new lease or invest in new machinery or equipment. It's better to find out that you can't afford new office space before you commit to spending a certain amount of money every month. a budget can be used to indicate some of the following:
• The funds needed for labor and/or materials.
• For a new business, total start-up costs.
• Your costs of operations.
• The revenues necessary to support the business.
• A realistic estimate of expected profits.
Components of a Budget
A budget should include your revenues, your costs, and -- most importantly – your profits or cash flow so that you can figure out whether you have any money left over for capital improvements or capital expenses. A budget should be tabulated at least yearly. Most yearly budgets are also divided up into 12 months, with blank columns next to your estimates to fill in with your actual results as the...