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A budget is a vital tool for small businesses – all businesses for that matter

by on November 21, 2018 in featured item, Latest News, Lead Article, News you can use, Nuggets, Small Business, Startups

A budget is a vital tool for small businesses – all businesses for that matter

Budgeting is not a particularly interesting subject that elicits wails of enthusiasm from small business owners.

We have all set budgets before and found it extremely difficult to stay within the confines of their financial limitations. Indeed, as time goes on, one starts to wonder why they even bothered dedicating the time and energy to creating a budget in the first place when it is so hard to stick to.

However, a budget is a vital tool for small businesses – all businesses for that matter – to manage their finances properly, and there are benefits to creating one and following it.

Helps attract investors

Angel investors and venture capitalists are interested in numbers. Beyond showing them how much they stand to make with forecasts and projections that convince them of the financial traction of your business, they also want to know how much it will cost them to get involved. The latter can only be achieved with a realistic budget.

You may need to sit down and understand all the expenses the business will incur, especially in the first six months of operations. On top of that, a clear picture of how you can save to create extra wiggle room for additional business operations needs to be outlined in the budget as well.

Helps you get a small business loan

A small business loan is an excellent way to get fast working capital. However, the financer of the loan, be it a bank or alternative lender, may need to know exactly how you plan to utilise the funds, among other things. Without a budget, your loan application has a high probability of getting rejected.

For example, when evaluating your business’ ability to repay the loan, the lenders might look into how much you make or plan to make versus how much you spend or plan to spend in the fiscal year. This information is contained in your budget and will please your would-be financiers.

Gives you the power to make decisions

As a business owner, there are numerous financial decisions you need to make on a daily basis, and only a budget can give you the necessary data to do this job effectively. These decisions include purchasing office equipment and paying salaries, bonuses, employee benefits, travel expenses and overhead operating costs.

Sets goals that can be used to measure success

How do you know how well your business performed in the fiscal year? You can use a budget as a yardstick. Budgets help you stay on track because they can help pinpoint where you are, based on your business goals (where you want to be).

Without a budget, you won’t know where you’re going, and even if you get there, you won’t know you are there. Budgets are useful in this way, and they also allow you to course-correct should you find yourself veering into uncharted financial territories.

Think of any business operation that could lead to potential growth and profitability, and you will come to realise it involves finances directly or indirectly. So anything to do with funds consists of a budget, making it one indispensable tool for small business owners.

Without a budget, mismanagement of money is highly probable.

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