Why Budget?

Today’s post is by Randy Russon, founder of TOPCFOS

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of the biggest reasons why any firm should budget is to preserve capital. Preservation of capital is essential in the successful operation of a business. This reminds me of a former client of mine who never learned the value of budgeting. I served his needs for several years and there was a period of time in his business where the gravy train came through town and he was enjoying great prosperity. For someone who is wise, this is the time to open a savings account and preserve capital. But, what was my client out doing during this time? He was out spending every dime of what came in. So, when the gravy train ended where was he? He was no better off financially than before, including a hefty house mortgage balance. One of the challenges of budgeting is the fact that it takes effort.

Budgeting is not easy, because it means putting fences up and controls in place on spending. The easy path is the path of least resistance where you spend everything. On the other hand, budgeting means placing controls in place over spending. The budgeting process where you put up fences on how much you can spend takes time to create. Creating budgets also requires energy and forethought. At the same time, creating budgets can be a blueprint to your financial future.

This brings up a question of what is the difference between a budget and a forecast. On the Accounting Tools website we learn, “In essence, a budget is a quantified expectation for what a business wants to achieve. Conversely, a forecast is an estimate of what will actually be achieved.” Thus, a budget can be a blueprint of what a business wants to spend. A business can also put in place framework to help implement what I call controlled spending.

Controlled spending comes about when a company puts in place software that tracks spending by those who use company debit or credit cards. An example of this kind of software is from a firm called Expensify. This type of software enables the user to take a picture of the receipt and record what the purchase was for, thereby creating more accountability for what gets spent. Limits can also be placed on company debit or credit cards to further control what can be spent to follow budget guidelines. Controlled spending is one of the great keys to what successful companies do.

We hope you’ve enjoyed our Blog today. Please remember, TOP CFOS offers the finest CFO services to companies anywhere in the world and would love to be a part of your team. Feel free to reach out to us anytime. Your feedback is most welcome, and we invite you to share this post with friends and associates. During the month of September, we are offering one free hour of consultation, all at no charge. Our contact information can easily be found here on our website, so give us a call today! Our next post will come from the Human Capital category on our website and is entitled Synergism. And, thank you for joining us!