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How to use budgets as a positive business tool to enhance performance

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One of the most effective management tools is your budget. This tool can be used each and every month to check the progress of your company towards it's goals. The budget is one area that is consistently underutilized and underappreciated. There are few business that take the opportunity to develop, analyze, and use budgets to help achieve the overall objectives and goals of the organization. The budget will also provide help to you when selecting alternatives to make your business plan realistic and achievable. A budget is simply a projected income statement that provides a detailed plan of future receipts and expenditures.

Once you have a complete budget, you can use it to compare actual results with anticipated goals. Use the information constructively and effectively, make any adjustments immediately, if they are needed. This will help improve the next budget. Your budget can also be used as a tool to assess whether your present profit is adequate.

A set budget can be a great tool to keep on top of what is happening in your business. To allow you to check for any discrepancies, break your budget down into monthly amounts. The monthly budget can provide you with an important financial management tool during the year. You can anticipate peak periods and schedule stock and labor to handle the volume of business by looking ahead at the coming months' budget. This will also help you plan vacations, and inventory taking during the slow periods.

You can use your budget to work on problems that have occurred during the month. To do this, set up a simple worksheet to compare actual expenses to your budget and review any differences from the amounts you budgeted. Using a comparison of your monthly profit and loss statements to your budget can give you an indication whether or not you are achieving your business plan goals.

Financial statements reflect every action or inaction a business undertakes. Understanding the plan, both operational and financial, will help make the connection between operations and the financial statements and what activities and results are expected. You can compare the expected with the actual, once performance begins, and then analyze the results.

To use a budget to its best advantage it must be built with an understanding of the organization and must have attention to "detail". The summation of what is known, understood, and anticipated about an operation is a budget. Revenues are not simply numbers. A revenue statement is reached through analysis. Management must make the connection between the numbers generated in the budget and in actual results to be fully engaged in the process of running the business and generating specific, measurable results. Your organization has a connection to every number in the budget and in the actual results. Every number in the budget is connected to the activities, processes, and people associated with your organization. Growing revenues and controlling expenses is how the bottom-line grows. Revenue growth and controlled expenses are both in part a result of how you invest in the business' resources, equipment, technology and people.

Think of your budget as the financial picture of your future. Budgeting can help your business plan for next year, for the next three years and even for the next five years, budgeting can help your business remain on the right road to success. It is critical to make your organization's management and team members understand how each role plays into producing financial results. Having a team that understands the numbers will allow you to focus more on achieving the bottom-line results.

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