By Brian Ravencraft
A budget is vital for any business, no matter the size of industry. While the importance of it is well-known, some business owners try their hand at flying blind without one. This is almost always a terrible move. I asked some of H&M’s Business Services & Solutions Team to weigh in on why a business owner should absolutely have a budget in place and what can happen if they don’t. See their answers below. I love sharing advice with you from my colleagues from time to time as it gives you different insights to gather from. Here are their thoughts on budgeting.
A budget is all about planning. Without a budget, you won’t be able to gauge the financial health of your business. A budget helps you establish your goals and then reviewing it periodically will help you keep track of the progress. The process of making a budget alone is a great tool for your business. The steps of setting a strategy and goals will give you a guideline for expenses and help you monitor your spending. Establishing a realistic budget will make you review possible roadblocks that you might incur along the way, and you will be better prepared to make changes in the plan. Remember, a budget is not set in stone, but it is your intended road map for your business, and it will help keep you on track.
A budget is one of the most important tools for a business. If you do not create and follow a budget for your business, you will overspend and lose sight of where your money is going. This could lead to cash flow problems, increased debt, and struggling to meet your business financial goals. The time and effort it takes to prepare a budget is well worth it. A detailed budget will help a business to manage necessary expenses, plan for unusual expenses and create a savings plan.
Linda Lehman — A number of businesses have periodic payments due throughout the year — these could be annual memberships; installment payments on loans, bi-monthly insurance premiums, etc. A budget (especially if it provides monthly detail) can help you see when these payments are due. This would provide a planning tool for upcoming due dates — for both the anticipated expenditure & cash flow needs.
Tammy Westbrook — Businesses typically make at least a mental list and “plan” for larger expenses and routine expenditures like utilities and rent, but the hidden danger lies with the smaller to medium costs. The seemingly insignificant payouts can sneak up and suddenly you can’t remember why your bank balance is dwindling! Having a budget that includes these incidentals along with the bigger expenses is the best way to foresee your upcoming cash flow requirements and plan for your ongoing success.
Christine McCoy — Basically, if a business or individual would not follow a budget, they could be spending more money on expenses than they think. Also, they will not really know where their money is going! The budget process may take some time to create and some investigation on their part to complete off of historical purchases, etc. It will open their eyes as to where all the money is going. This process will help the business owner know exactly what things cost and where the business money is going by expense buckets, and also help see what months may have high and low fluctuations.
Natalie Bruns — Budgeting is a very useful tool to project income and expenses for the coming year, as well as to set targets and goals. It is important to follow and review budgets regularly. When an organization does not follow their budgets, expenses and spending can add up very easily and quickly. Before you know it, expenses can exceed revenue, bringing any net income to a loss. When this happens, it can be difficult to monitor and control positive cash flow, which then may then land an organization in debt.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.agribusinessaccounting.com or www.HolbrookManter.com.