I’ve had many to ask of Why the budget is so important for the entrepreneur? I have especially seen these questions from independent entrepreneurs or small businesses of one or two people. Let me first say that having a budget is one of the key components to a successful business no matter the size. How do you know where you’re going if you don’t have a plan to get there? How do you know how well your business is progressing or not, if you don’t have something to measure your performance against? Simply put, a budget is a financial plan, and it helps you manage your future business income and expenses. It reflects the goals and objectives of your business combined with how you think your resources will be used. It doesn’t stop there though, a budget serves as a roadmap for your business. It helps provide a compass for making important business decisions in a more efficient way to ensure your business is headed in the right direction. A budget also allows you to think more ahead and anticipate what might happen in your business, which in turn contributes to effective management.

Here are other reasons why I believe budgeting is important to the success of any business:

1.) It provides insight into your business and sheds light on whether your business is on the right track financially.

2.) Create a performance measurement mechanism where you can understand what your business is doing compared to what you thought or planned.

3.) A budget shows that you are a serious entrepreneur, which makes your business attractive to potential investors and is a critical component of obtaining financing from a bank.

4.) It acts as a management tool for the daily running of your business.

5.) You can make adjustments early once you realize that your business may not be meeting your planned goals.

6.) Because a budget is a forward-looking document, it serves as a planning tool for future growth.

7.) It produces discipline in the sense that, as a business owner, you are more aware of your expenses and more careful in managing costs to ensure that you reach your set goals.