Budgeting

The budgeting process is an important tool for improving financial management of any business whether its small, medium or large. And a policy to budget each year by preparing projections, by every small business owner, can improve day-to-day management. Every small business needs such a commitment to find the time to budget. Is getting a new projection started a difficult task? Most people would say "yes."

Many business owners or managers in mid-sized businesses find it easier to simply add inflationary and mechanical percentage increases to the current year's projection and complete the next year's budget quickly without, giving this process much thought. I have seen creating a monthly budget just by taking 1/12 of the annual amount. This is not correct. Each month will have its own results, and may be impacted by seasonal factors and should be budgeted separately. So a careful monthly budget is important to have meaningful monthly comparative budget amounts with actual.

People may realize that their business, needs a budget, but they may find creating a new projection is a huge task, and huge tasks are hard to start, much less complete. Another important budgeting tip is to prepare a budget using a balance sheet and the statement of cash flows as well as the income statement. Most business just budget with the income statement. By using all three financials you can make sure that your ending cash is correct. This technique ensures a reasonableness check by analyzing the your projected cash,because you have to make sure that your cash makes sense in the budget process. QuickBooks has a budget process, but unfortunately it only provides an income statement based approach and does not provide you with a budgeted balance sheet and a budgeted statement of cash flows. There are add-ons and other budgeting programs that fill this need and they are not expensive.

Everyone is always busy, so once you decide to budget for next year, you are already ahead of the curve. Now it's important to do it correctly, so you need find the time and budget as best as you can. The time you invest now will pay off later. Businesses that plan for the future will do better than those that do not plan. Pretty basic right, so start your budget now for 2011.