Reduce Your Commercial Risk
March 16, 2016
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Are Budgets Relevant For Small Businesses?

Small business owners often decide that budgets are not for them. Comments such as “I worked in large businesses before and all budgets did was restrict me” or “I’m just starting out, budgets are not relevant for me” are common reasons for not having a budget.

However, despite the past experiences most people had with budgets, in a small business, budgets are one of the business owner’s best friends and guides.

Most business owners start out with the intention of making a profit. Their dream is to do work less hours while making more money. They usually have a well-honed technical skill and a strong desire to succeed. Plans are hatched, friends are spoken to, professional advice is (sometimes) sought and the big step is made. Often a small business will be started part time from the safety of employment before the leap to full time self-employment happens.

Despite the plans make and the best intentions of all concerned, often a slow build up is the result. Patience, long hours and frustration usually result in a steady stream of work, although often the result is not what was originally planned for.

A lack of budgeting can sometimes be part of the problem. A budget forces the business owner to answer the following two questions:

  1. “What do I want my business to achieve?”
  2. “What do I need to do to achieve that?”

When a business does not have a budget it is easy to dismiss less than desired performance without addressing the reasons why performance is lower than expected.

If your profit and cashflow are below expectations try asking yourself the following two questions:

  1. “I thought it would be better than this: why is the business not performing as well as planned?”
  2. “What will I do differently next month to get a better result?”

Reviewing actual performance against planned performance is a positive first step towards building a more profitable business.

If you would like assistance preparing a budget to help you generate more profit and cashflow feel free to contact us.

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