Many entrepreneurs approach the creation of a small business budget with the same contempt as lying in a bed of scorpions. But when they eventually discover a simplified format that isn’t an ominous task, the result is a useful tool in efficient allocation of resources – including the business operator’s time. The budget for a small business requires no degree of complexity beyond this objective.
A budget targets expected business performance expressed as revenue generated from the input of expenditures and time. The budgeted periods may be monthly, quarterly, or annually. Figures in a budget consider past performance, available resources, and market conditions.
The vast potential for a small business budget is deploying it to evaluate performance. Comparing actual results to budgeted projections delivers informed judgment about trends and efficiency. When revenue performance falls short of expectations, the cause could be the controllable input of expenditures. Funds may need reallocation among various expense categories. Or perhaps the time frame for attaining projected revenue was not realistic given the available cash resources. If revenue is indeed realized that validates projections, evaluating the expenditures that were necessary for this accomplishment is important for repeated success.
Budgets are benchmarks that initially are little more than guesses. Subsequent evaluation of actual performance against budgeted amounts enlightens about reasonable profit margins and cash flow requirements. Future spending patterns are thus fine tuned to maximize revenue. Moreover, budget numbers for future periods become easier to devise and represent greater accuracy.
The Finance Writer 