Many small businesses try to operate without a formal budget, meaning they are not gaining the business advantages that they could be through budgeting. For any business, a budget is like a roadmap that can help them set goals and assess the validity of their business concept. Drafting a budget is a key way to help you turn your dreams for business success into reality.
The budgeting for operations will include the following:
- Preparing estimates of the future activities of the organization.
- Preparing estimates of future sales
- preparing estimates of future cash collections and disbursements
- Summarizing these estimates into an income statement and balance sheet.
Advantages of Budgeting:
- Helps the business owner to plan for the most economical use of labor, material and capital.
- Rewards high performance and seeks to correct unfavorable performance.
- Compels division’s managers to make plans in harmony with the other departments and of the entire enterprise.
- Forces business owner to consider expected future trends and conditions.