Why Budgets are Important for Corporate Growth
Part 1 of a 2-part series
For many of us, when we hear the word “budget” we think of restriction, limiting resources, or saving for a rainy day. But budgeting is much more than that. Not only does budgeting help a company grow, but for government contractors it also supports Provisional Billing Rates and increases efficiency in the pricing proposal process.
First, the budget helps in setting goals for the company. For every business owner it is important to have set goals, both long term and short term. The budget helps in setting or adjusting these goals by answering questions such as, “Are the goals attainable?”, “Is the time frame reasonable?”, “What do I need to invest in order to reach those goals?”, or “What do I need to do to have the funds in order to invest as needed?”
Second, a budget helps business owners to stay focused on the goals. All too often, business owners get caught up in the daily grind and forget about the big picture. This lack of focus causes resources to be misspent. Reviewing the budget on a regular basis helps business owners to ensure resources spent on a daily basis are in line with their long term goals.
Third, a budget assists business owners with communicating the company goals. Business owners often struggle with communicating company goals to management and employees. This leads to a lack of direction and inefficient use of company resources by management and employees. By setting a budget, business owners then must communicate to employees, areas where they play an important role in meeting the budget. It also opens doors for communicating company goals to employees. You never know, an employee might have a great suggestion!
Fourth, the budget helps to find areas needing improvement. There is always room for improvement, the question is where? Reviewing the actual costs against the budget on a regular basis will bring to light those areas which need improvement. Or it might bring to light something which was forgotten during the budgeting process. Either way these areas of improvement will help a company to more efficiently use it resources in meeting the goals of the business owner.
All of these areas affect the growth of the company. Without the right balance of focusing on short-term and long-term goals, a company will not reach the owner’s goals. A properly used budget will become an owner’s “right hand” in decision making. For help with setting up a budget for your company contact your accountant.
Check in next month for Part 2 which will cover how a budget helps government contractors with Provisional Billing Rates and price proposals.
Contributed by Jamie M. Shryock, CPA