Budget planning is a critical aspect of good business management. As an entrepreneur, there is always a tendency to overspend as the money comes in, expenses that it was not intended for may crop up and you may divert the fund. Where entrepreneur tend to huddle up is when it concerns large budget items like acquiring a new car, mortgaging the office or getting a new home.
These are some of the issues that make entrepreneur to consciously take actions that is in line with pressing financial needs or target. However, it would do you well if you cultivate the habit of drawing up a budget and following through. Before we look at critical reasons why budget planning should be instituted by entrepreneurs, let us take this time to define what we mean by “a budget” so that we will be on the same page.
Budget Defined
In its simplest term, a budget is an estimation of a person’s income and expenses for a given period. One thing that the definition brings up is that a budget is not based on what you have in your bank account alone, but it also includes income that will be coming in as well as projected expenditure. Now there are cogent reasons why you should inculcate the habit of budget planning.
Projecting the Income
Projecting the income for a year from the known sources of income grounds the organization. This should have a cold water effect as you look at the known sources of income and tally them to determine what you will have for the coming year. There will always be a degree of informality when it comes to budget planning, but this is one area where it is advised that you should not add anything they do not have at hand as at the time of drawing up that budget.
The sources of income should be well defined as things that are already present rather than what they believe will happen sometime in the period they are looking to cover. This will help in grounding them to the reality of their financial circumstances. For this reason, budget planning should not be done by one member of the organization. It should be done by all stake holders as well as any other member of the organization you consider or deem fit.
Sources of income will include all estimated income from business. In this regard, under-estimation is always better than over-estimation.
Projecting the Expenditure
Projecting the expenditure serves the same purpose and much more, the same rule applies when it comes to estimating the expenditure for the year. Your business also have capital projects. They may come in the fold of office equipment, cars, and major repairs. Sitting to look at the income for the year and the capital expenses can do several things:
• You get to take some hard decisions on the capital projects that must go with and what you will have to sacrifice.
• You also get to see how to manage other expenses
Planning a Budget Can Make You Become More Entrepreneurial
Having a budget plan is not just a means of projecting income and expenses but serves to inspire the business in becoming both financially prudent and investment minded. Knowing what is coming and where it would be going has a way of making people take establishing other streams of income seriously.
If you tend to handle your income and expenses with a light hand, know that it becomes serious when you start making budget plans, seeing where the money is coming from and where it would be going. Becoming more investment minded and looking to add to the income as an entrepreneur becomes the norm.
It Allows You to Have Holidays and Celebrate Occasions in Style
The beauty of planning ahead is that you have more time on your hands. Including expenses such as birthdays and other celebrations can be a source of inspiration for you and your staffs. They already know that they are operating with limited resources as they get to project what they can spend for the coming events. This could work in their favor to dig in deeper as it were to add to that experience.
Planning allows you to use the scarce resources budgeted for such events in the best way possible.
It Bonds a Business, Especially When Parts of it are Revealed to All.
As an entrepreneur, it might be understandable that you may feel that your business should be protected and you do not have to let your staff know of some things, but you might decide to let them in on a few aspects of the budget. However, it is important to note that having a round table as such and revealing as much as possible can build the family bonds in ways previously unimagined. Just as the lack or scarcity of money has the power to destroy business, it also has the power to bring the organization together.
It all bores down to how involved everyone is made to feel. Staff tends to be the last to find out about things related to money, introducing them to this joint process of family budget can serve to build them up as individuals, as well as bond the organization to become a stronger unit. There are fewer ways financial prudence can be thought better than getting the whole team or workforce together to plan a business budget.
It is important that they are comprehensive when it comes to projecting how much would be spent on various items. Budgets usually is operated on the basis of what is known against that which is expected to come. For instance, some of the things that are known will include.
The current salary.
The current sources of income aside from the main source.
Their current weekly expenditure on office equipment.
Current mortgage and loan payments if any.
The cost of coming capital expenditure.
The current expenses is used as a basis to plan for the coming year and can then include any other expenses.
The more comprehensive the budget, the more accurate the picture they will get of their financial standing in the coming year.
Making business budgets may not be popular but the benefits of having one should be compelling enough to get you and your business started.
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