Planning Your Budget

A budget is everything to a business; it is the epitome of professionalism as well as the lifeblood of good planning. It is absolutely impossible to do anything well in business without a budget to go by and indeed in the cases of some more established business models it is actually illegal not to have regular budgets that show exactly what is going on with the business in a financial sense.

When it comes right down to it, planning your budget is one of the most crucial things you could ever hope to do for your business. A properly planned budget that is then executed well is going to be a great help to any business and of course a poorly planned budget is going to be the downfall of most businesses; usually before they've even had a chance to succeed.

So, what exactly makes a good budget? Well, reducing it down to first principles any budget that has inflows to cover the outflows is a good start. More so than that however, the inflows need to be at least equivalent if not in excess of the outflows and the outflows combined have to create something that is competitive to the business itself.

A good rule of thumb when it comes to making budgets lies along the lines of the cost efficiency principle. The cost efficiency principle basically states that you should not be afraid to spend X dollars if you are going to get Y dollars in return with Y being at least equal to X if not greater. Now, this is an interesting concept but some would argue it is not one that is particularly tenable in the earlier stages of a business because a business needs to spend a lot to get itself off the ground.

This is a good point, but one that is superficial at best. While each item X may not result in a gross income of Y, you can always add items together in order to receive that result. If you have X + Y + Z resulting in A + B + C and both of those equations are equal to D, then there is really nothing to worry about because overall you are adhering to the cost efficiency principle in your budget.

This is exactly what good planning for a budget is. You identify what needs to be done from a financial sense and then you make sure to carry it out in a way that allows you to maintain the cost efficiency principle. Don't ever spend money in a business unless you expect to get money (or something as valuable as money) out of it; otherwise, what is the point of going into business in the first place?