If a business owner spends the income on required items and pays the bills as they come in, he may not have an idea of how much the business is actually earning. Since the cash flow is not defined by a budget, the business owner may not recognize whether the company has a profit or has debt. Creating a simple financial budget has numerous benefits for the business owner, as he will have a better understanding of the business’s cash flow.
Creating a financial budget will provide financial awareness of the spending and earnings of the business. The budget will outline exactly how much the business is earning each month from sales and additional income. It will also show much the business is spending on operational expenses like office supplies and fixed utility bills. The operational budget should also show the company’s given assets and liabilities at the current time. This will reveal whether the business is in positive financial standing or negative. It will also briefly reveal the direction of the financial standing, as the budget will show whether the business has a monthly profit or is continuously creating debt.
One benefit of having a financial budget for a business is to recognize opportunities that can help market and expand the business. The budget will reveal the amount of profit the business can put aside each month. This means the business owner can use the profit to expand the business and market it in new ways by attending conferences and joining marketing campaigns with larger businesses. Knowing the funding available can help the business owner plan ahead and market the business in new and creative ways.
Having a monthly financial budget can highly improve the procedure of creating annual reports. Annual reports are collections of the business’s financial information over an annual period. This information is not only useful for a business owner but also for investors who may be interested in the company. A financial budget is essentially a communication tool, as it shows how the business operates internally and how wise the money is spent within.
Because the budget reveals how much the business has in assets and liabilities, the business owner will know how much the business owes in loans and unpaid taxes. This knowledge can help the business owner create a financial plan so the liabilities can be addressed before the debt becomes uncontrollable. This is done by setting financial goals and creating a monthly payment system, so the liabilities are paid over a set period of time.
Based in Toronto, Mary Jane has been writing for online magazines and databases since 2002. Her articles have appeared on the Simon & Schuster website and she received an editor's choice award in 2009. She holds a Master of Arts in psychology of language use from the University of Copenhagen in Denmark.