Businesses Don’t ‘Plan to Fail’ They Just 'Fail to Plan’

Many Businesses Don’t ‘Plan to Fail’ They Just ‘Fail to Plan’

• Compare Results: Most businesses have lots of transactions happening and it can be difficult to keep track of it all. By having a budget i.e. something to compare actual results against you have a regular procedure for checking income and costs are on track.
   
• Identify Overspending: If you don’t have a budget you may not find out until way after the financial year that you have overspent on some items. With a budget you can identify overspending quickly and take action to fix it. A budget can be entered into most accounting software systems and a ‘Budget versus Actual’ Profit and Loss can be printed so that you can easily see any variances and manage them.
   
• Spending Limits: A budget lets staff know there are limits on spending. It’s amazing how some staff will keep spending if they don’t have a limit.
   
• An Income and Expenditure Goal: A budget is a goal for what you want to achieve. There is a saying “If you aim at nothing you will hit it with amazing accuracy.” Only by having a goal can you hope to do any better than in the past.
   
• Resources: A budget helps you to plan what resources will be required to achieve the sales you plan. It’s important to match the outgoings with the income and plan what resources will be necessary. Thus avoiding ‘Crisis Management’ which is no good for morale.
   
• Funding: If you want to acquire business funding you will definitely be required to produce a Budget and probably a Business Plan. A lending institution needs to be confident you have ‘thought through’ your business and funding requirements.
   
• Break-Even: Some people say “There’s no point doing a budget because I can’t predict what I will sell”. This should not be an excuse! Most businesses know what their costs and overheads are so it should be possible to calculate the “Break-even” point. Break-even means the level of income you need to cover costs and overheads i.e. not making a profit or a loss but a $0 result.

Sue Hirst is the director of accountancy and financial controlling firm CAD Partners Pty Ltd. Browse their smallbusiness[HQ] directory listing here.

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