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Why It’s Important to Create a Budget for Your Business

January 6, 2014

As the calendar turns from 2013 to 2014 we prepare ourselves for a new year filled with hope, enthusiasm and opportunity.  January 1 also marks the start of a new fiscal year for many small businesses, especially unincorporated businesses.  As an owner, one thing you can do to help your businesses succeed is to spend some time at the beginning of the year creating a financial plan or budget.  Planning is an important part of the success of every business, even established businesses, as it allows you to track actual performance against expectations and allows you to make informed decisions should unforeseen financial issues arise.

 

Why You Should Have a Budget for your Business

Surprisingly, most small business don’t take the time to create a budget at the beginning of the year.  Creating a budget and tracking the actual financial performance of your business against what you projected allows you to identify potential issues and make any necessary changes in your business before it’s too late and you incur losses.  Say, for example, you planned for a profitable year but during the first quarter your sales weren’t what you projected them to be.  By identifying this issue at the end of the first quarter you would be able to react in the second quarter and beyond, possibly by increasing your sales efforts or by reducing expenses.

Creating a financial plan for your business also gives you the opportunity to make informed decisions if unexpected things happen in your business.  Imagine you discover half way through the year that the roof on your warehouse needs repairs.  Your budget will help you decide whether to do minimal repairs to get by or to replace the whole roof and not have to worry about it for years to come.

 

How to Create a Budget

Most popular accounting packages, like QuickBooks, include functionality to create a budget.  You go through each source of revenue and expense and project how much money you think you’ll make or spend.  Once you’re finished you’ll be able to see whether you’ve projected a profit or loss for the year.

When creating your budget you can look at how your business performed in past years as a basis for projecting how it will perform in the coming year.  But be careful not to let one-time revenues or expenses skew your budget – say you replaced your entire warehouse roof last year then your building maintenance costs would have been higher than normal you should use a lower, more typical number.

 

Let Simply Bookkeeping Help …

A knowledgeable and experienced bookkeeper can help you with setting up your budget.  They can help you understand the past financial performance of your business and project how your business is likely to perform in the future.  A bookkeeper can help you periodically review your budget and compare how your business is actually doing against how you expected it to perform and understand any discrepancies.  Simply Bookkeeping provides professional bookkeeping services at a reasonable cost and can help you with establishing a solid financial plan that will help your business succeed at the highest level possible!

Please visit our website at www.simplybookkeeping1.com or contact Michele Hyde by phone at (647) 668 – 9363 or by email at michele@simplybookkeeping1.com for a no-obligation chat to see if Simply Bookkeeping is right for you.

 

Have Your Say

We’d love to hear what you have to say about financial planning and budgeting for businesses.  Please leave a comment below, we’d love to hear about your experiences, opinions or best practices!

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