The ability of an individual to adopt a proactive approach towards managing his own or his company’s money is known as his budgeting skills. Budgeting skills involve conscious decision making about allocation of money such that expenditures do not exceed the income.
Budgeting skills serve as a great tool for planning and control since it involves planning all expenditures for a business, and determining in that process whether or not the company has enough resources to do all things that require attention.
In case resources are not enough, an individual with ideal budgeting skills shall be able to prioritize and focus the spending on things that are most important.
Why is budgeting important
Budgeting is mainly appreciated and practiced in organizations for its ability to balance expenses and income in a manner that ensures the business has money/resources for everything that needs to be done. However, its significance for organizations can further be attributed to the following factors:
- Debt troubles are reduced. If a business doesn’t operate within its financial means, it will have to rely heavily on debt which can prove to be hazardous to its well-being. Therefore, by helping a business have controlled expenditures, budgeting enables it to avoid all troubles that excessive debt tends to cause.
- Business performance can be monitored. Since budgeting enables you to project and plan future expenditures, you can easily compare the actual expenditures with the budgeted ones to monitor the performance of the business. This, indeed, is the reason why budgeting is an amazing tool for planning as well as control.
How to improve budgeting skills
Budgeting skills may be one of the most powerful tools for a successful business but they are not easy to acquire. Yet, with a little effort you can easily improve upon the already acquired budgeting skills. Following are some helpful tips:
- Research thoroughly and save for hidden costs. Doing your homework is mandatory. You should try your best to prepare and plan for every certain as well as uncertain expenditure by allocating money ahead of time. However, some hidden costs tend to sneak up on you inevitably. Therefore, as a contingency plan, at least 20% of the revenue must be set aside at the outset for any hidden costs such as an unexpected new competition, employee turnover or regulatory costs etc.
- Find your way out of the debt. Taking a bank loan is sometimes inevitable for businesses. However, for improving your budgeting skills you must focus on paying back those debts as fast as possible in order to avoid paying the excessive interest. The sooner you clear the debts, the sooner you will be able to free up your budget for other things.
- Be flexible. Never take your budget for something that cannot be altered. They are, after all, just estimates. You should never worry too much about having to shift around a few things. In fact, it is always best to set aside a part of your budget for “setting aside” for there might come a rainy day for the business when you need that financial cushion.