How many times has it happened that you ran out of money without ever realizing the expenses and their worth? Or incidents when the expenses exceeded the hypothetical budget that once took shape in your mind?
All these are the probable outcomes of weak budgeting.
From running a house or a business or managing your own personal one-man expenses, preparation and following a budget and maintaining spreadsheet always prove helpful.
Essentially, budgeting is a process to prepare a plan in order to manage outflow of the money and finance available.
Every business aims at generating money and for that to happen, it should always spend it judiciously. This holds even more importance for small and medium enterprises.
All the money that flows in should have a managed outflow which must go via savings.
Forming a realistic budget and sticking to it allows keeping debts under control. Some points explaining the need of budgeting are summed up as follows.
Helps organizing a business and give an insight to the future money needs
Allocating specific amount of money to various areas such as electricity, telephone, internet, general administrative expenses and alike, helps prepare a definite chart and schematize the expenditure. It also aids in estimating the future money needs.
Helps cut down on unnecessary expenditures
A budget gives a fair idea about how much money is needed to be spent in a specific area. It also helps identifying the places that should be subjected to a budget-cut. For an example a start-up company has three telephones connections but only two of them can suffice the need of the company. Budgeting helps locate the real needs. This also helps recognize expenses that are a good return on investment.
Maintaining financial control
One always knows where money comes from. Why then its outflow should remain unknown? Spending without exactly knowing where a full stop has to be put only leads into shortage of money. Therefore it’s always useful to have a good financial control and save the employees from end-moment pressure.
Improving management skills
Financial management is a crucial part of management skills. Breaking down various aspects that needs to be allocated money and then spending in accordance with that budget demonstrates as well as enhances the managerial abilities. This is not a one-time exercise; it is something to bring into regular practice. Monitoring expenses is a part of the process to achieve expected profits.
Helps keeping investors on your side
Often it is mentioned in the investment terms that management must provide an annual budget to them. Formation of a realistic budget, implementing it and keeping a track of its results helps build the trust of investors, in turn strengthening the base of the company.
Creating a budget never means compromising on the needs; it simply aims at organizing the expenditure of money available.
