Budget planning: what is it and why is it important? Find out!

Do you plan your budget to control expenses and have predictable revenue for your business? This document centralizes important financial information in one place, bringing you more clarity and allowing you to make better data-based decisions.

In today’s post, we will explain what budget planning is, what it is for and how this document works. You will also understand why it is important to have budget planning in your business and how a financial application can help with this planning. Come read!

What is budget planning?

Budget planning involves defining the resources invested by the company, as well as the likely inputs and outputs over a given period of time.

The idea is to plan what the business budget will be like in the future, considering the company’s costs, sales and revenue. This planning can be done thinking about the period of a month, a quarter, a semester and even a year. The important thing is to create a detailed document, with good predictability of the amounts mobilized.

Furthermore, it may not be possible to provide all the numbers in this planning, but it is necessary to review this document to understand whether it is aligned with the reality of the business.

Budget planning should be an ally of the company in the financial organization every month.

What is budget planning for?

Budget planning can take on many different roles within your business. It is a very efficient way to organize the company’s budget, have a broad view of investments and monthly revenues, in addition to allowing detailed analysis of results.

This document also increases business transparency, as you are clear about how much is being invested and where the resources are allocated, avoiding wasted money.

So, budget planning is not just an accounting document, but a powerful tool that helps you and other managers in decision making.

How does budget planning work?

Budget planning can vary from company to company and from sector to sector, and there is no pre-established standard for this document.

But, in general, it is interesting to define:

  • budget goals;
  • the period to be considered in planning (for small businesses, it may be more interesting to carry out monthly planning);
  • sales projection for the established period (you can base it on previous months and years and also on the predictability of your market);
  • fixed expenses (such as internet and rent);
  • variable expenses (such as water);
  • costs of products and services (product raw materials, employee salaries, team training);
  • monthly and annual taxes;
  • costs with suppliers and freight (you can consider an increase in the volume of demands on commemorative dates, for example);
  • equipment maintenance and cleaning costs;
  • emergency reserve (to cover unexpected situations, such as a computer breaking down, for example);
  • debts or loans (considering how many installments to pay).

You can divide your budget planning by themes or areas of the company, for example. The idea is that this document makes sense according to your business model. So, you should customize it keeping that in mind.

From this survey, the idea is that you will be able to draw up different scenarios for your business, both more optimistic and more pessimistic, and be more prepared to face the situations that arise.

If you want, you can count on the help of specialized professionals to carry out your budget planning, such as accountants.

And what are the main benefits of budget planning for your business? Check it out in the next topic!

How important is it to have a budget plan?

We have separated 4 reasons for you to adopt budget planning. Come and see!

Optimize financial health

Having a budget plan is a great strategy for small businesses that are just starting out and for companies that have already been in the market for some time.

Planning optimizes management and facilitates the creation of important reports for the company’s financial health, such as the DRE (Income Statement) and the DFC (Cash Flow Statement).

All of this helps to organize the business’s inputs and outputs and prevent you from being in the red. But, even in the case of debt, budget planning is important so that you can have more predictability about when and how to pay off what you owe.

Thus, it is important both in the short and long term, as you have clarity about monthly expenses, but you can also have a clearer vision about the future of the company’s finances .

Understand the economic situation of the business

As we said, budget planning brings more transparency to the financial area of ​​the business. This is essential for you to understand the company’s real economic situation.

Furthermore, with this greater control, it is easier to clearly convey important information to teams and align everyone on the team on the same page.

Using budget planning, you can anticipate scenarios and avoid financial losses that harm the company’s health. With teams aligned, actions can be taken more quickly and negative scenarios can be reversed sooner.

Improve decision making

We saw that budget planning brings a broader vision to your business, as well as clarity in the short and long term.

This makes it possible to speed up and improve decision-making based on accurate information about your business.

Budget planning is also a strategic tool for finding cost reduction opportunities and understanding where you are investing. This way, it is possible to analyze whether the investments are bringing the expected return or not.

This is essential for making informed decisions and defending your point of view to the teams. Once employees understand what is happening, direction is clearer.

Greater control

Organizing the budget into a plan ensures greater control of finances and more efficient management of this aspect.

This document facilitates monitoring of results and makes it easier to make changes and adjustments when necessary. Additionally, you can decide whether the planning is static or flexible. In other words, whether it is possible to have a certain flexibility in what will be spent or whether this is a fixed aspect and cannot be changed, regardless of the situation faced.

With budget planning it is also possible to establish a margin of resources to be used in unexpected situations, such as the need for urgent hiring or renovation.

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