IMPORTANCE OF MAKING A BUDGET

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A BUDGET in simple terms is a sum of money a business puts aside or plans on spending in a period of time on a specific number of things. More than 90% of companies have budgets that they do their very best to abide by. Here is some importance of making a budget to a business.

1. Help business to manage its money.

Having a financial budget helps a business manage how it spends its money. If a business has a budget, then it means that they have already allocated a specific sum to expenses, the buying of inventory, etc. hence the budget has helped them allocate money and know how to spend it rather than not having a budget at all and just keeping the money probably in a bank and taking it out once they feel the need to spend on something which can highly lead to a deficit.

 

2. Limit expenses.

If there exists a budget, then before the business would come up with an amount to spend on expenses, it would have taken into account so many things they normally spend on as a business such as rent, inventory, vehicles, and salary. When this happens, and the business does its best to stick to the budget, they would then not be making any excess spending which can cause financial loss.

 

3. Saves time.

Firms or businesses that already have a budget for a certain period of time know already what they plan on doing and once a business has some future plans already made down with regards to money, they would not have to call for a meeting or sit-down every time they want to spend. For example, if company A has a budget to spend on 10000units of inventory and new vehicles, when the time arises to buy the new vehicle, because its already in their budget, all that would have to be done is the payment and not a long meeting as to whether to buy or not.

 

4. Helps plan for the future of the business.

A business financial budget is not made for just a day or two. It is made for a longer period of time such as every quarter or annually. Now, once the business has a plan for the future, it simply means they have a focus, and a map of what they intend to do. If they follow this budget they are guaranteed of achieving their aim such as cutting down expenses and so on. Here, due to the fact that the business has a budget they have been able to set a plan down for the near future and know their next move.

 

5. Motivation

Budgets tend to motivate managers and directors to also motivate their workers so the set budget for a period of time is achieved. Without a budget the business would be working blindly towards nothing. But with a budget the managers are kept on their toes to drive their subordinates to work to enhance the rapid achievement of the budget. Hence, leading to achieving success and growth.

 

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