This post originally appeared on the Louisiana Technology Park blog.
A well-constructed business budget can give your company valuable insights into your finances and increase your chances of long-term success. So why do an overwhelming majority of small businesses fail to budget in a comprehensive and effective way?
“The biggest reason is procrastination,” says Ameen Walker, the owner of First Financial of Baton Rouge, an accounting and financial advising firm that works with small businesses of all types. “They know they need to do it, but they just don’t do it. Sometimes it’s complacency. Sometimes they’ve been in business a while so they just keep operating the way they’ve been operating and don’t think they need to do the basics anymore, if they ever did them.”
Without a budget, Walker says, spending can get out of hand quickly and place your small business in a financially precarious position. “It’s usually these small purchases that end up pushing them over the edge,” he says. “When you don’t have a good idea of how much you’re supposed to be spending, you just spend it. If you have some money in the bank, you spend it.”
Walker shared some of the principles of his budgeting approach for small businesses, which is designed to help you better understand your expenses and revenue. These five tips can help any small business draw up a more effective budget.