This is a good time of year to think about your current financial performance, and to start planning for next year. Budgeting, especially when looking at current year performance as a baseline, is an excellent way to start that planning process. This blog is the first in a two-part series on budgeting; in this post we will discuss WHY you may want a budget for your business, and in the next post we will discuss HOW to create one.
You and your team should be setting goals for your business, and the budgeting process forces you to do this. Budgets are used to project revenues, spending, and profit margins, and the budgeting process forces you to think about what those revenue, spending and profit margin goals are going to be. This will help you think thru how you will achieve your long-term vision and what your short-term strategy will be to get there.
A budget helps you establish and communicate priorities. For example, if you are planning to increase sales of a product or service, hire new employees, and spend more on advertising in your budget, then this will not only establish priorities but also send a message to your team about those priorities, and will encourage you and your team to make decisions that support your short-term strategies and areas of focus.
3. Resource allocation and decision-making.
Budgeting and decision-making go hand in hand. Once the priorities are established, funds should be allocated to those areas that you have prioritized and that support the strategy. A budget therefore simplifies the decision-making process around spending, and helps you control spending, because a resource-allocation roadmap has already been established.
4. Accountability and Performance assessment.
Budgeting provides for a built-in mechanism to assess performance and establish accountability. By comparing budget-to-actual revenues, expenses and profit margins, your business is constantly holding itself accountable for performance in light of its goals.
For assistance with budgeting, or any other legal needs related to your business or estate planning, contact Fournier Legal Services for a free consultation at firstname.lastname@example.org or 860.670.3535.
Joe received his law degree from the University of North Carolina–Chapel Hill School of Law and his Accounting degree from the University of Rhode Island. He is admitted to practice law in Connecticut, Massachusetts, and Rhode Island, and he is a CPA. He is an Adjunct Professor and lecturer at the University level and has been a frequent speaker on business planning and legal matters.
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