Why Budget?

I recently had a client ask why it was important to budget or more accurately, I had a client state that he didn’t see the value in budgeting.  Having been in business for many years without doing a budget, I guess I can understand why he would say that.  Budgeting reminds me of using a map or a GPS to get to somewhere new.  Have you ever tried to go some place new without having looked up the place on MapQuest or keying it into your GPS?  Of course not, that would be ridiculous!  You’d get lost or would make a lot of wrong turns; it would take you a lot longer to get there; and you might even drive right past the place and not even know you’re there.

Hmmm, sounds like trying to run your business without a budget, doesn’t it?  Following are 5 reasons off the top of my head on why I think budgeting is important:
1.    It defines your annual goals in measurable, time bound terms.  You can’t get much more specific than months and dollar amounts for your businesses sales, expenses, cash flow, assets and liabilities.
2.    If your business is cyclical, it helps you prepare for valleys and peaks and let’s you know where you need to be year to date to stay on track.  This is something that would be very hard if not impossible to track in your head.
3.    It lets you know when things are slipping and by how much.  It could be any of the items mentioned in #1. As trends develop, you are able to adjust your behavior to prevent a disaster.  It gives you early warning signs.
4.    It lets you know where you are excelling – if sales are up or if you a doing an excellent job of containing your costs, it may indicate to you that you can invest more money in advertising or technology or equipment.
5.    Most importantly, it defines success in black and white terms.  At every point in the year, you will have an objective measurement system to let you know if you are succeeding or not.  It doesn’t candy coat your failures and it reminds you to celebrate your successes.

So take the time to put together a budget, it doesn’t take long and it is probably one of the most important tools and measurement systems in a business owner’s arsenal.