We've written multiple times recently that the numbers aren't everything, but that doesn't make them any less important or critical to operating a business. A wise person once said, "it's not how much you make, it's how you use it." Of course, we can always fall back on the line: If you fail to plan, then you plan to fail. With that in mind, we're going to talk about the importance of a balanced budget.
What does this look like? There are some general guidelines about setting up budgets, but that's a different article. When looking to create a balance budget, make sure to consider the following:
- Set Goals and Commit
- Write down all sources of income as well as the final total (this will help to set the new budget)
- Look at and analyze last year's expenses, looking for seasonal, unexpected, and monthly expenses.
- If you have a budget from the previous year, (assuming this isn't the first time/first year), then take a look at it and determine how close or far off you were. If the budget was way off, try to determine why.
- Make sure to distinguish between the needs and wants of the company
- Include a savings/emergency fund
Why is this important? Balancing the budget helps to set benchmarks for the year. Even if the predictions for the upcoming year are off by a little, after analyzing the past year's expenses, you can be better prepared for the upcoming year. A budget helps shed light on the expenses that are coming and to help a company be prepared for as apposed to just reacting to them. That way, when you're blindsided by a random expense, it's a bump and not a catastrophe. Planning where the money goes (at least statistically speaking) will also help to ensure that money isn't wasted and that overspending is avoided.
What to remember: Every budget should follow the basic guidelines but will also need to be unique to the company. Seek advice and ask questions even when you know (or at least think you know) the answer or topic. Asking questions helps us to learn and possibly glean something new that we didn't know before.