What Does Budget Balancing Mean?
March 26, 2018 (Investorideas.com Newswire) Budget balancing basically means having a budget wherein the revenues are equal to the expenditures. It means having neither a deficit nor a surplus. It is a financial plan that is usually used in government. However, it may also be used in small businesses.
Why Implement Budget Balancing?
Budget balancing is mainly aimed at addressing deficits. The goal is to control expenses so the organisation operates within its means, sustainably. It's a conscious effort to keep track of expenses and match them with revenue sources. For many organisations, it is an attempt to try to avoid going into debt by minimising planned disbursements as much as possible. Balanced budgets need to be evaluated on an ongoing basis. For small businesses or startups, this should not be difficult to do. Small business budget balancing should be relatively easy since there aren't that many items to keep track of.
Does Budget Balancing Mean Breaking Even?
No. Of course, no businessman would want to merely break even. To have a balanced budget, what's important is simply to have expenses that don't exceed revenues. Call it a misnomer but a balanced budget does not and should not mean that you are just earning the same amount you are spending. Certainly, you shouldn't reduce your income estimation because you have lower expenses.
If you are expecting higher income for a budget period, it's not necessary to also increase your expenses, increase bonuses, or to create new expenditures or business ventures just so you can use the expected higher income. You may need careful planning on what should be done especially if your prospects for expansion are not that rosy.
Is Balanced Budgeting Good?
For the most part, balancing an entity's budget is good. It helps control expenses to avoid incurring debts. It's useful when undertaking austerity measures. Small business budget balancing can help make an organisation or business operate more efficiently. It is a good financial planning tool that reduces wasteful spending especially for businesses with limited resources. However, it also has a negative side to it. It may prevent fruitful spending. The conscious effort to balance expenses and revenues may prevent the exploitation of opportunities to generate more revenues.
How to Balance a Budget
There are no procedures to follow in balancing a budget. However, it would be helpful to consider the following tips:
1. Don't underestimate your costs. A little overestimation would be useful.
Being accurate with predictions or estimations in business is ideal but nobody is capable of doing that. That's why it's better to overstate expenses and understate revenues. It's more prudent to think that you are going to spend more and earn less than to get in trouble after realising that you overestimated your revenues and underestimated your expenses.
This does not mean you can't be optimistic about your business outlook. Every businessman should always hope for the best. However, expectations should be set towards the worst outcomes to maintain a mindset of preparedness. This is like setting buffers to prevent bad operations results from throwing your plans off.
2. Consider time as a major factor.
In coming up with a balanced budget, it's important to not only focus on the financial figures. Time also matters. Time also entails corresponding pecuniary value. Wasted time for work means lower productivity hence lower business performance. It's important to anticipate events that could affect the time spent on doing business.
It's important to remember that the months, quarters, or seasons of the year are not similar through and through. There are different holidays, weather or climate-induced disruptions, events, and many other things that can affect the time of your business. All of these have to be taken into account when doing estimations especially when it comes to projecting labour costs, the purchase of raw materials, and the expected sales.
3. Regularly evaluate your budget.
A balanced budget generally needs to be periodically or regularly evaluated. It could be on a monthly, bimonthly, or quarterly basis. It's important to examine if the estimates/projections matched or greatly deviated from the actual results. Adjustments may have to be made based on the actual business performance and expenditures incurred.
4. Observe flexibility.
In line with the regular evaluation of the budget you want to balance, you have to be flexible with your budget. Modifications or adjustments may have to be implemented depending on how the actual expenses and revenues turn out. You can't set a budget for an entire year and keep the details as they are through and through. Having a balanced budget for a year is virtually impossible.
A budget is a plan, not a strict rule for your business operations. Changes may have to be made not only because of unexpected adverse conditions but also because of unexpected successes. For example, if your social media campaign turned out to be a huge success which translated into a considerable boost in your sales, it only makes sense adjusting your allocations for your expenses. You may want to allot funds to pay for debts that provide interest discounts for early payments.
5. Review suppliers or renegotiate with them.
This is another point that is connected to the regular evaluation and flexibility of a balanced budget. You may need to examine if the terms you have with your suppliers are the best as compared to what other suppliers are offering. Don't be caught up in the sentimentality of being with the same supplier for several years or decades. You need to scout for better terms with suppliers to lower your expenditures and improve sales. You may also consider renegotiating with your suppliers after presenting to them details on the more advantageous deals offered by other suppliers.
Get everyone involved and use incentives wisely.
Lastly, enlist the help of everyone in the business to achieve the essence of a balanced budget. You can't just prepare a budget and expect everyone to work as expected. Sometimes, you need to offer incentives and motivation to make everyone do their best to achieve the results you are hoping to achieve. Be smart with the use of incentives, though, especially if they involve additional expenses.
In summary, budget balancing basically means having expenses that don't exceed revenues. It's mainly about controlling expenses in relation to revenues. It's about efficiency and operating within your financial means to avoid having to incur debts. It's something that helps improve the operations of a business.
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