In talking with business people all over the United States, I’m amazed at how many CEOs, company presidents and business owners have not prepared a formal budget to operate their business.  They don’t realize how budgets are essential for business success.

Most of these business people have no idea what their sales are, nor do they have any idea of what they spend on payroll, operating costs or whether they are making money or losing money each month, let alone for the year.  They obviously know if they can pay their bills or not.  But it’s not till April 15^th of the following year, when they file their business tax return, are they aware of what they actually spent in total.

In addition to budgets, whether you have an in-house bookkeeper or your business accounting is done by a CPA firm, you need to have monthly profit and loss statements.  Profit and loss statements are important in order to know if your business is making money; to know if and where you are over budget for the month, quarter or year.  Profit and loss statements can determine if the budget was done incorrectly or alert you to a problem in a particular category.  Profit and loss statements also help you build your budget for next year.  Without a monthly profit and loss statement, you really don’t fully know what is going on in your business.

It’s true that a budget is just a projection or an educated guess of what you think your company expenses will be for the coming year.  But after you’ve been in business long enough and done enough projections for the budget, your projections get more and more accurate.  Your budget for 2009 should already be completed.  If it’s not, today is a good day to get started as the New Year is fast approaching.

A yearly company budget helps you understand, for example, how much cash flow you’ll need, what you’ll spend on advertising, office supplies and equipment, labor and every other expense in your business.  By evaluating your profit and loss statements and last years budget you can see what areas to increase spending and where to decrease spending.  The company budget also helps you know how much revenue you need to bring in to pay the bills, break even or make a profit. 

There’s an old saying:  Most people don’t plan to fail.  But they fail to plan. 

And when you talk about budgets and business success, you couldn’t be making a more accurate statement.

If you want to get your new business year off to a good start on January 1^st, preparing a company budget now in the closing days of 2008 will give you a better and more complete understanding of your business, help to control your costs and, most importantly, make a profit.  Having a budget simply assists you in staying on top of your business.  And in these challenging economic times, having a budget is essential to your continued business success.