Do you own a small business? If you do. My next question is “do you have a budget?”. I can tell you without a budget, chances are you struggle with growing your business.
While you might think creating a budget is a waste of time, it’s really a much-needed tool for growing your business. Here are 4 ways budgeting helps your business growth:
- Evaluate and plan your spending
- Act as a target for spending
- Speeds up financial performance reviews
- Allows you to effectively delegate
Evaluate and plan your spending
Without a budget, you probably don’t have a business plan—another tool that helps you grow your business. Budgeting is part of business planning. I hear many owners say it’s difficult to predict how much they’re going to spend. If you define your goal and objectives for the year first (business planning), then it’s much easier to predict how much it will cost. We call this high impact business planning.
A budget acts as your spending target
Your budget is to your spending what your sale goal is to your selling – a performance target. If you manage your sales, you review them each week or at least each month to make sure you’re hitting your sales quota.
You use your budget the same way to create your spending target. So, at least monthly, you should measure your spending against your budget.
Your budget speeds up financial performance reviews
Often small business owner don’t review their financials because it takes too long. Don’t get stuck in the details. Just make sure you hit your target % goals for COGS, gross profit, overhead expense, and net profit. Look at these numbers as a percent of revenue. If you’re within these percentages set by your budget, then you’re on track and can move on. If not, then you need to dig a little deeper. This is why good financial accounting is so critical to growing your business.
Budgeting allows you to effectively delegate
Finally, a big challenge many owners face as their business grows –delegating responsibilities. You know how much work it is running a small business. Many owners feel uncomfortable by losing control and as a result subconsciously self-sabotage their businesses.
Budgeting helps you take control! Your budget sets the spending plan, then delegating work and the expense associated with it becomes easier to monitor. Your budget communicates the expectations. This helps with accountability giving you more control to manage from a distance.
There you have it—4 ways budgeting helps you when growing your business. What are others that you’ve experienced as you have grown your business?