Six reason to have a budget
Here are six reasons to invest time, energy and money in creating a budget:
Number 1 – a budget helps you to avoid unpleasant and difficult situations
There are very real situations that range from ones that I hope no-one has to deal with, like your business being sued or going bust, to less dramatic but none-the-less unpleasant situations like having to let a valued member of staff go or working 70 hour weeks indefinitely.
We live in a bubble that these things will not happen to us, but they can and do. For example a budget will show what your break-even point is and the level of business it needs to achieve to avoid going bust. We have all heard the statistic that 9 out of 10 businesses fail in the first year. In most cases people did not realise the money they needed to be bringing in until it was too late.
So, in doing a budget you might realise you need to secure a bank loan or an overdraft facility and you might have 8 months to deal with it instead of one. You may very well go on to have a successful business where you might have gone bust without the time spent on a budget.
You may also have to confront that your business does not work and will not ever work. That is an important consideration to confront because it is one that we are most afraid of.
Number 2 – a budget helps you identify opportunities
You may well see that with even a modest investment in marketing, you could very realistically achieve a level of profit that would allow you to invest in a new member of staff. That in turn could allow you to consider a major new aspect to what you are doing.
If you do take my advice and create a budget you may find yourself in this situation where you experience real excitement at seeing what is possible in your business.
Number 3 – a budget gives you a feeling of control
When you have worked through the threats and opportunities and got to a budget you are happy with, you will almost certainly feel in control in a way that you have not before.
Feeling in control and happiness are closely related. This will help you reduce stress and it will almost certainly have a knock on effect on your performance at work and your profits.
In fact, I would go so far as to say that if you ever experience on-going unhappiness in your business, the first thing to do is review and rework your budget challenging every assumption on which it is built.
Number 4 -a budget increases motivation
These last two lead me on to the next benefit which is improved motivation.
A clear plan ahead with achievable goals and sense of having thought about upcoming risks will give you a great sense of motivation. If you have employees and involve them in the process, this will include them also. A budget can therefore bring your team together and motivate it.
Number 5 – a budget will improve performance
As we will see a good budget is not built on figures plucked from the air, but on actions that lead to results. If the actions are clear, performance will follow naturally.
When you under-perform it will be clear that you or your employees did not take certain actions. You can hold yourself and others to account. If you employ others you may even link pay to performance or to the actions that have been agreed.
Numbers 6- a budget will generate support
You can demonstrate opportunity to others. Investors want to see how they can get their money back.
A budget will show this and the willingness of an investor to put money into your business will open up further opportunities. A budget can be used to get a bank loan or overdraft.
So, in summary a budget will bring:
- A sense of control
- Improved Performance
- Team cohesion
A good return on your investment.