Does your small business have an annual budget? For the majority of small businesses, the answer is – no. This is according to a new survey of over 300 small business owners that revealed that over 60% of small businesses did not have a formally-documented budget.
A realistic and detailed budget is one of the most important tools for guiding your business and specifying the information needed to operate within your means, handle future challenges, and ultimately, make a profit. Small businesses might have a hard time maximizing their financial success when they neglect to prepare a formal budget.
A solid budget categorizes capital that is currently available, estimates expenses, and predicts revenues. You should repeatedly refer to your business’ budget as a method of measuring performance against expectations.
This article delves into why small businesses might opt not to prepare a budget, what they risk by doing so, and offers some tips for creating a budget.
Small businesses may see budgets as constraining. The majority of small business owners who opted not to prepare an official budget make that decision intentionally. Many entrepreneurs create their small business because it offers them the freedom that they couldn’t find in a workplace that has already been established.
For these owners, a budget might feel confining. They don’t really want to hold themselves accountable to anything because that’s what they’re trying to escape.
Furthermore, creating a budget may seem overwhelming for small business owners who are already inundated with day-to-day problems.
Lastly, businesses may not prepare a budget because they are operating in an uncertain environment, where estimates for the future seem insignificant because things change so quickly.
Budgets don’t have to be constraining – in many ways, they help a business to better plan for the future and provide them more opportunities to grow. Finally, budgets can provide guidance through the cloudy waters of operating a small business, even when there is a higher level of ambiguity.
Lack of a budget can lead to serious issues. Without a budget, businesses risk a number of issues, such as:
- Limited long-term planning;
- More unforeseen expenses;
- Inability to identify problem areas before it’s too late.
There is any number of examples of businesses whose lack of budgeting led to serious issues. It can be challenging to identify what your company would need financially on a month-to-month basis, but without a budget, the money can be depleted with little warning.
We don’t just manage your finances, we help you grow your business. Feel free to contact us with any questions or comments you may have – we’d love to hear from you.