Alan understands that having a budget is key to running a successful small business. But his long work days leave him little time to create one.
Operating a business without a budget is not recommended. A budget is a useful tool that will help Alan make informed decisions and serve as a guide for meeting the company’s financial goals. However, Alan will need to incorporate accurate data and reasonable goals in his budget for it to be an effective management tool.
Alan should involve key employees in the budgeting process since they can be a good source of cost-saving and revenue-increasing ideas. Managers and department heads should also be encouraged to submit expense projections. If Alan isn’t sure how the numbers were calculated, he can ask for explanations.
It’s important that a budget takes into account future cost increases, such as those associated with health care and new employees. Alan also should work a contingency plan into the budget that identifies items that can be cut or postponed if sales are down.
Creating and using a business budget is an ongoing process. Periodically, Alan should compare his actual results with his budget projections to see if they are realistic and to determine whether any adjustments should be made.
Finding the time to prepare and implement a budget can be difficult initially, but in the long run, a budget is a critical tool for managing a small business.
Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.
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