A budget is a plan that covers all financial details. It is a process
that shows how you plan to spend your money. This is usually in form of a document that
covers income and expenditure for a period of time; It can be a year, some
months, weeks or even days. A budget is
usually detailed to show items such as planned sale, income, planned
expenses, cash flows, Etc.
The importance of the budget is to show future income and
expenditures, which, means the budget will show all the business plans
represented in figures (money). This helps the business or individual know keep
a clear and detailed record and plan of money coming into the business (income)
and money that will be spent (expenditure).
A budget can be created using just a pen and paper, can also
be created on your computer using programs like Microsoft’s Excel. There are
also other financial applications such as QuickBooks or Quicken.
Why your business needs a budget?
business needs a budget. It is important to have a budget, because a budget is
a very important element which adds to the success of any good business. Here
are a few reasons why your business needs a budget.
Money for Important Business
Needs: Since a budget creates a plan for how you
spend money, it ensures you have enough money for the things you need and the
most important for your business. It helps you prioritize your spending and
where you need to focus your money.
Business Plan Needs: Having a budget is a very
important part of your business plan. It shows all the necessary cost that will
be made for a start-up. It also gives you a detailed cost and plan on items you
need to start your business from day one, such as cost of getting a location
for your business, inventory and so on.
3. Getting a Loan: A budget shows you exactly how much you need
to start your business. This is very important when you are asking for any kind
of loan or seeking to raise the finance to start your business. Whether you
want it’s a loan from family and friends, an investor or even a bank, the budget
will show your lender exactly how much you need and how you also plan to pay
Knowing Your Required Profit: A required profit is how
much money you need to make from your business, to meet all your expenses in
the business. A required profit budget
usually shows all the money you need to spend each month for the business, and
how much income needs to make it balance.
Relationship Between Income
and Expenditure: A budget
will help you plan for how much the business has coming in (income) and how
much needs to go out (expenditure). This helps show how much the business is
making or expected to make and if it matches how much is being spent and ultimately
if the business is running at a profit or loss.