The importance of a yearly budget for small businesses

One of the biggest mistakes small business owners make is neglecting to come up with a yearly budget. This is different from the one, three, and five-year projections made before opening the company. The annual budget takes into account all the things that take place while the business is actually running.


It’s this yearly budget that allows owners to make some adjustments to the business. More or less, it can be considered a "readjusted operating budget." Alongside these invaluable operation tweaks, owners can also see the bigger picture and have confidence in the business.

Image source: business.com

The readjusted operating budget may take a lot of work, so it is best to start with simple numbers at first. Predict both revenue and revenue growth and list direct costs (costs of products sold and the expenses for their delivery).


More often than not, numbers, especially for the first year, will only show the business either breaking even or at a loss (if the business starts to hire people or expand right away). Business owners shouldn’t be discouraged. As mentioned earlier, this budget may be used to tweak operations. It may be the basis for a company to stop buying unnecessary equipment for the time being.

Image source: floridabizbroker.com

However, the most important thing to remember with this budget is to track everything in the cash flow, all the income and expenses, to get a clear, unbiased picture of the bottom line and how it is affected by changes in the real world.


Michael Giuffrida has been working as a managing partner at Titan Strategic Partners based in Hartford, Connecticut. The company’s expertise is in building and improving organizations from startups to established businesses. For similar posts, visit this blog.

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