A budget will provide a business with a forecast of income and expenditure for a given period of time.
Normally prepared on an annual basis and before the start of a new financial year, there are many advantages for preparing a budget, including:
- keeping track of your business’ progress throughout the year, giving an indication of when cash flows are coming in and out (e.g. tax and GST obligations);
- allowing you as an owner to plan major expenditure items such as capital purchases;
- reducing or keeping out of debt; and
- allowing you to focus on the big picture and strive towards the business’ goals by prioritising what items are important and when they can be achieved.
Comparing your budget to actual figures throughout the period will also allow you to flag any potential issues such as shortages of cash and examining certain expenditure items if they appear to be getting out of control.
Whether you are a sole trader or a multi-national corporation – budgets are essential for the success of your business.