A whopping 50 percent of small businesses fail within the first five years, according to the Small Business Administration. One of the top reasons why they couldn’t make it past that five-year mark? They ran out of capital, meaning they failed to budget properly.
A budget is more than just a list of costs and expenses — it’s a plan for your future. Sure, setting a budget helps you manage expenses, but it’ll also help you clearly identify areas where you want to see your business grow, while ultimately increasing profitability by optimizing cash flow. Profitability plus optimized cash flow equals sustainability.
Whatever your size, whatever your business, a budget is essential for survival. Yet only about 64 percent of businesses actually have one. With proper budgeting and planning, your chances for success and continued growth improve dramatically.
The planning process
Don’t get hung up thinking about your budget as a financial report that requires a ton of accounting knowledge. Your budget is a tool offering insight into where your business stands today. It guides you as you develop strategies to reach your goals — all while helping you better manage your cash.
Anyone responsible for managing the performance of your business can, and should, be involved in creating your plan. However, once you’ve committed to it, you need to hold yourself and your team accountable to creating it annually, and updating your actual revenue and expenses each month. By tracking your progress and adjusting your forecast, you’ll be better informed to manage your cash and achieve your goals.