Why Having a Budget Is Important From Your Favorite Orange County Bookkeeper

As an entrepreneur, you likely place a high value on freedom. When the word “budget” is mentioned, you may feel like it hampers your freedom. But it’s really the opposite; Here’s why:

According to a 2019 article in Small Business Trends, “Startup Statistics – The Numbers You Need to Know,” 82% of businesses that fail, do so because of cash flow issues. Even if your business is no longer a startup, the failure rates for businesses started in 2014 were as follows:

• 20% failed to make it to their 2nd year
• 30% failed to make it to their 3rd year
• 38% failed to make it to their 4th year
• 44% failed to make it to their 5th year

Many of the reasons for business failure can be prevented with good budgeting and planning.  Here are some benefits of making a budget and effectively managing it.

• Help control spending by seeing what is available beyond the cash balance at one time.
• Curb Impulse buys by avoiding spending on anything that is not budgeted for.
• If a loan is needed to finance the business, you have a better idea of how much you need and how to best schedule the loan payments.
• Increase the chances of business success.
• See future revenue shortfalls – gain the ability to take proactive steps to boost sales.
• Better manage growth.
• Better knowledge of your profit level so you can make pricing changes, tax predictions, appropriate compensation, and other strategic changes.
• Able to plan for large expenditures such as asset purchases and time them better for cash flow, loan acquisition, and other considerations.

Getting started with a budget is easy.  If you’ve been in business for more than 1 year, simply start with last year’s figures then adjust for the growth and changes you want.  The numbers can be entered into your accounting system so you can run reports that measure actual progress versus the budget numbers. Now you can make good business decisions based on your variances.

When you take a little bit of time to create a budget, you really can enjoy the freedom of knowing you are on track to make your numbers.  If we’re not already working with you on your budget, feel free to reach out to Team One Accounting, your favorite Orange County Bookkeeper to find out more.