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Budgeting

Nearly 50% of businesses fail within five years.

Let that sink in – FIVE years.

The reasons businesses fail are varied. Sometimes circumstances out of an entrepreneur’s control have a catastrophic impact. Other times, it could be that a business owner failed to pay attention to their finances.

The number one reason companies fail is because they are under-capitalized. They simply don’t have enough money to pay bills, salaries, and continue growing.

How can a business owner prevent this from happening? Estimate your business’ future income and expenses so it can be compared to actual performance over time. This is called budgeting and it should be a huge part of your financial plan.

Sherman Oaks Accounting & Bookkeeping powered by One Source Services has professional budget-makers to help.

A budget is an estimate of income and expenditure for a set time period and should be compiled and re-evaluated regularly.

Budgets may include planned sales income, revenues, inventory quantities, expenses and costs, assets, liabilities and cash flows.

Budgets are used by a variety of entities including families, governments, companies and other organizations.

Not only does a budget total the money allocated for a specific purpose, but it also summarizes intended expenditures and proposes how to meet them. Some budgets may include a surplus and provide money to be used later, while others may have a deficit when expenses exceed income.

The essential purpose of a budget is to control resources.

The benefit of budgeting does not end there, though.

A budget assists managers with planning actual operations. It forces them to think about how conditions might change and what proactive steps might be taken now. It encourages managers to assess relationships between their departments and those of other operations.

Budgets communicate plans to managers with differing responsibilities, motivate them to achieve their budget goals, evaluate their performance and hold them accountable. A budget is a great report card to check on management’s performance.

Hiring an impartial, outside company like Sherman Oaks Accounting & Bookkeeping powered by One Source Services will help ensure your business’s priorities and vision are reflected in the budget.

Many organizations compile their budget annually. A large company may have to put in a considerable amount of effort to achieve a finished budget, allowing hundreds or perhaps thousands of contributors from numerous departments to itemize their anticipated revenues and expenses in the final budget.

When the actual numbers for a budget period are close to the budget they created, this illustrates that the contributors understand their business and are successfully steering it in the desired direction. However, if the numbers are significantly over or under what was budgeted, then managers should see this as a warning sign. Often a big variance will trigger share prices to drop.

It is undisputed that success requires planning. You took the risk of starting a business and you’ve done a lot of hard work, now put in good planning. Spend with purpose, realistically forecast cash flow, and steer your business in the desired direction.