The Importance of Budgeting for MSMEs

A budget is an accounting tool used to outline a company’s expected revenues and expenses for a future time period.
This period can be monthly, quarterly (every three months), annually, or more.
Many small business owners tend to believe that budgeting is a practice that is only necessary for large companies or corporations; however, budgeting is vital to the success of businesses of all sizes.
Operating a business requires careful planning and review of finances.
There are many advantages MSMEs could experience should they employ proper budgeting techniques in their operations.
Creating an initial start-up budget guides entrepreneurs in creating a list of tangible items such as equipment, inventory, etc. as well as intangibles such as marketing, labour, etc. for investment.
A budget offers a road map to achieving the goal (successful business launch) while navigating spending throughout this process.
Thereafter, budgets may help small business owners to effectively limit their expenditures by eliminating items/services deemed as “non-essential” and limiting the amount spent on essentials.
This may force the business owner to actively seek the most suitable suppliers of business inputs and save money in order to meet budget limits.
Budgeting is also a great way to create goals and objectives for your business, while serving as a tracking tool to evaluate execution.
This allows for the answering of certain questions such as: “Were the goals and objectives realized? Were we able to keep within the budget limit in doing so? Are there adjustments to be made for future budgeting?”
A recession may bring a lot of changes for small businesses such as decreased revenue, increased operational costs, stricter lending terms just to name a few. Many businesses fail during recessions while others manage to stay afloat. Budgeting can prove to be a key factor to a business’s survival in tough times.
During times of economic recessions, budgeting can be a powerful tool in combating the inevitable decrease in revenues which tends to happen simultaneously with an increase in costs.
By purposely minimizing spending and seeking out more affordable suppliers, the business owner is forced into more conservative business practices in order to keep within his/her limit.
Having a well-planned budget can help to place necessary focus on affordable marketing tactics which can serve to boost sales in rough times.
Budgeting, therefore, makes it much easier for your business to see its way through seemingly dark days.
Utilizing budgets as a business tool undoubtedly gives small business owners a better understanding of the mechanics of his/her business while enhancing management practices and providing guidelines and limitations to the use of moneys in order to stay within the means of the business.

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