Factoring Invoice - The importance of budgeting regardless of how small your business is. Part 1 - Why create a budget? It's not just the numbers!
This last week our management team has been finalizing our budget for 2012. Because we are going through the budgeting process ourselves, I thought that this would be a good time to put together a series of blog articles on budgeting/forecasting. When I bring up budgeting with small business owners they usually tell me it isn't very helpful for them because their business is too small or is impossible to predict. So this blog will try to answer the question, "Why it is worth my time to put together a budget?"
For some reason business people think budgeting is a waste of time because they know in their gut that the numbers aren't going to be 100% accurate. Just because we can't predict the future doesn't make the process worthless. The numbers that are the outcome of the budget are only one of the benefits. TThe other big benefits are the answers that come from the process itself. When you make a commitment to put together a budget for your firm, you are making a commitment to think strategically about your business. You have to put your CEO hat on and think of your business with some objectivity.
- Review of the past - When you sit down to create a budget you are forced to look at your business as a some of its many parts. Revenue, expenses, wins and losses. As business people we need this pause. We need to take a step back, and look at our business when we are not in the throws of our day to day activity. Pick a time when you know that you won't be disturbed for an hour or so and go through your financials line by line. Take notes and ask your self questions. Before you can forecast the future you need to understand the past. For me this is probably the most important part of the whole process. If I want to be as accurate as possible in forecasting the future I am forced to really understand the history of my business.
- Thinking of the future - Once you have you are satisfied that you have answered all the questions about the historic performance of your business, it is time to start thinking about the future. Budgeting forces us to think about how we want our business to look in the future. What are the biggest challenges we are facing? What are our competitors up to? How is my local economy doing? These are just some of the questions that you will have to answer. Budgeting will make you think about the future of your business in the context of your market as whole.
