Don’t Miss Out on the Long-term Potential of a Budget
Budgeting is crucial in getting you past the first 5 years. If done well, your odds of surviving in the long-term goes up.
Budgets are essential for both startups and mature businesses that have been operating for more than 5 years. But having one in a small business could be the key to success, considering their high failure rate. An alarming 82% of small businesses fail because they run out of capital. In other words, they didn’t plan their budget well.
One of the reasons many businesses don’t have a budget is because they don’t really know what it is. In Corporate America, the word ‘budget’ has become synonymous with forecast, outlooks, or plans. In small businesses, budgets have a negative connotation because they only view it as something that restrains spending.
But in fact, budgets are much more. They contain not only a spending plan but have a revenue and a sales plan, as well as, bottom-line profit. Working with a professional accountant can help entrepreneurs manage revenues, as they can give you solid advice based on your cash flow.
The long-term potential of a budget
Small or large businesses need and use a budget. It’s beyond the need of creating a meaning from your cash flow. It helps a business navigate the ups and downs of the market. A positive cash flow is the lifeblood of a business, but when it is negative that business won’t be around in the long-term. A budget can help businesses be thoughtful of long-term future and help them incorporate goals business owners and stakeholders want accomplished in the business.
A survey by Deluxe Corporation found that only 64% of businesses across a wide range of industries have a budget. Those without a budget are clueless as to what their cash flow looks like. They carry a mental picture of their budget which is not always aligned with what’s actually going on. That makes it easy for them to overspend and not have enough cash to cover expenses crucial to the running of the company.
Financial management resources
The survey also looked into the resources businesses used to manage finances. 72% of businesses used accounting softwares like Quickbooks, Peach Tree or Sage to help them do bookkeeping on their own. Around half of them went to an accountant to sort through their finances for them, while 24% used an online service. Although many tools are being used manage finances, it’s surprising to still see businesses not keep a budget and suffer in the long-term.