Why You Should Create an Annual Budget

I think these are great points on a personal level - for adjusting your personal budget to fit your needs. After all, budgets can be flexible and adjustable, they aren't set in stone.

But what about the small - medium-sized business owner?

I feel it important to mention, budgets don't just tell you your history or past trends, they are great indicators or "early warning signals" in terms of where your budget is going. It is so important to use a budget for planning because it does more than reflect where you have been.

Also it is very important to understand the difference between an operating budget and a cash flow budget. The operating budget is your blueprint for success, allowing you to set financial goals and map your progress against those goals. A cash flow budget lets you track how much money you have on hand to pay your expenses. More businesses fail because of poor cash flow, not lack of profitability. This needs to be revisited monthly, especially with a volatile industry.

In addition, I think it is important to mention the emotional side to budgeting. Sometimes there is a fear involved in knowing. For example, business has exploded and you, as the owner haven't had time to look at your budget, the longer you put it off, the more difficult it is to sit down and take inventory. If you set a monthly goal and date each month, you can stay up with this system and don't get so bogged down with months and months of information. Look at the budget more as a tool and leverage to strategize the direction of your personal goals and/or business, this is key information which will help you in your everyday decision making process.

Dana Costantino

http://www.pcg-services.com/embrace-the-joys-of-budgeting/

Dana Costantino of CA 4:40PM November 10, 2011