Why is budgeting so important – especially for SMEs?

Written by Anni Mari Wyk

On Nov 28, 2019

Entrepreneurs often fall into the trap of overspending and lack the ability of proper cash flow and financial management. The lack of proper budgeting has also been discovered as the leading cause of most failures in most businesses.

When you budget, you identify your current available capital, estimate your expenditure and anticipate your incoming revenue. Budgeting also enables small business owners to concentrate on cash flow, reducing costs, improving profits and increasing returns on investment when they outsource these services to professionals.

As a professional accountant, I have helped businesses recover from terrible financial states and improve their cash flow, however, that cannot be maintained without consistently preparing financial statements such as budgeting.

Here are some of the key factors that I think should be more than enough to convince entrepreneurs to take budgeting as serious as it is:

– Budgeting estimates revenue, plans expenditure and restricts any spending that is not part of the plan

In my experience, when you use a budget to help manage your business, you can determine whether or not you are on track. You set a budget based on what you want to happen and what you think is going to happen. As you move through the year, you can analyse whether you are doing better, worse, or exactly as you thought you’d be doing. You can make adjustments to your operations to help you get to where you want to go.

– Budgeting ensures that money is allocated to those things that support the strategic objectives of the business

When you set your budget at the beginning of the year, for example, you can see problems or other issues to address ahead of time. Your budget helps you to plan out the year, understanding when you will hire, if you will need to move to new office space, will including your expected sales growth and the corresponding staffing, equipment, materials, space, how you will handle cash flow shortages.

– A well-communicated budget helps everyone understand the priorities of the business the process of creating a budget provides opportunities to involve staff, resulting in them sharing the organisation’s vision; and engaging the team in reviewing and comparing the budget with actuals can provide information that highlights the strengths and weaknesses of the business.

These factors are only a few of many, but they all highlight how important it is for small business entrepreneurs to manage their finances for the survival of their businesses.

Budgeting for your business is not something that you can do at the top of your mind as a busy entrepreneur, why not outsource? Let’s plan your finances properly – get in touch with me

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