I’ve had many to inquire of why budgeting is so important for the entrepreneur? I’ve especially seen these inquiries from solopreneurs or small businesses of one or two people. Let me just say first that having a budget is one of the key components to a successful business no matter the size. How do you know where you’re going, if you don’t have a plan for getting there? How do you know how well your business is progressing or not, if you don’t have something to measure your performance against? Simply put, a budget is a financial plan and helps you to manage the future income and expenses of your business. It reflects the goals & objectives of your business combined with how you believe your resources will be used. However, it doesn’t stop there, a budget serves as the roadmap for your business. It aids in providing a compass for making important business decisions in a more efficient manner to ensure that your business is heading in the right direction. A budget also empowers you to think more about the future and anticipate what could possibly happen in your business, which in turn makes for effective management.
Here are other reasons why I believe budgeting is important to the success of any business:
1.) Provides insight into your business and sheds light on if your business is financially on the right path.
2.) Creates a performance measurement mechanism in which you are able to understand what your business is doing compared to what you thought or planned.
3.) A budget shows that you are a serious entrepreneur which makes your business attractive to potential investors and is a critical component in getting funding from a bank.
4.) Acts as a management tool for running your business on a daily basis.
5.) You are able to make adjustments early once you realize that your business may not be reaching its planned goals.
6.) Due to a budget being a forward thinking document, it serves as a planning tool for future growth.
7.) Produces discipline in that as an entrepreneur you are more aware of your expenditures and more careful to manage costs in order to ensure that you reach your established goals.