Small business owners have a bad impression of budgets. They feel that they can be left until the end, are suffocating, and set in stone. All of these things aren’t true.
1. Budgets can be left to the end
A common myth is that you should leave all the financial stuff until after you’ve finished making your business plan. That’s a mistake because your plan is deeply dependent on it. Rather, a business is built around financial projections and the budget. They are core to operations and the key to sustainable growth.
Because finance so strongly influences business decisions, it shapes the direction and strategy of the organization. If, for example, a small business does go ahead with its big plans and no budget, they’ll find themselves growing at a pace that can’t be supported by their revenue. The business will need capital injections to survive, which isn’t sustainable in the long run.
2. A budget constrains your spending
For some reason, people have a negative impression of budgets. They think it’s just something that limits your expenses. On the contrary, budgets allow you to spend more.
Financial projections tell you which projects to invest in and which to avoid. It’s almost like a fortune-teller telling you which path to take. Small businesses don’t have the cushioning effect large corporations do if they fail. Because the stakes are higher, they need to bet on decisions they’re sure about. Forecasts of future expenses and revenue help business owners make the right decision.
3. Your success depends on meeting your budget
Some businesses view the budget as a benchmark to live up to. If they don’t achieve it or find it difficult to, they can get stressed and feel like a failure. The truth is your budget is not set in stone.
Your investors know this, your partners know this, your suppliers know this, and you should know this too. Budgets can be adjusted. Therefore, anytime the numbers are no longer adding up, you can stop and change it. Budgets are meant to be used as a guide. So, don’t treat them like a contract your business has to fulfill now matter what, because they aren’t.