Budget Goals

Ongoing challenges of small-business budgeting center mainly on maintaining focus and balance. Strategic business goals define the budget strategy and the budget strategy defines budgeting goals. The process must ultimately balance operational budget requirements with the funds required to achieve long-term business goals. This is a main reason why budgeting is never a set process but instead is one that often fluctuates each year. Goals and strategies for a small-business budget help the business monitor progress, control spending, manage cash flow and make profit projections.

Significance of Goals and Strategies

A business budget is, in reality, an action plan for achieving strategic business objectives. Budget strategies set the main focus of a budget and in most cases don’t fluctuate as often as budget goals. A strategy, for example, identifies what financial objectives the business wants to accomplish while goals define how the budget will achieve these objectives. Every business budget identifies fixed expenses, the variables a business can control and makes predictions for variable expenses it can’t control. Budget goals focus mainly on establishing a plan for variable business expenses.

Profit-Based Budget Strategy

Profit is the most critical long-term business objective for most small-business owners. As a result, most use a profit-based budget strategy to align long-term business and budget goals. The budgeting process starts by setting a profit expectation and then working backward to set budget goals. Profit-based budget goals focus on increasing sales without also increasing expenses. For example, the business might allocate less to advertising and promotion but leverage reductions by using social media. In contrast, the business might allocate more to upgrading technology so the business is able to service additional customers without having to hire additional staff.

Growth-Based Budget Strategy

Once a small business establishes itself, growth often becomes another driving force. When a business turns its focus from profit to growth, the budget strategy and goals also become growth-oriented. The goals of growth-based budget strategy center on closing gaps in the human capital, systems and processes that are necessary to encourage growth. A business is more likely, for example, to allocate more to employee training and development, purchase equipment that increases productivity and invest in or purchase another business.

Cost Control Budget Strategy

A slow economy and a resulting dip in sales is one of the few times when a budget strategy might not align with long-term business objectives. Regardless of the current financial health of a business, a budget strategy focusing on cost-control goals might become necessary. The severity of cost-control goals do, however, depend on the business’s current financial state. For example, a business in relatively good financial shape may stop hiring, freeze wages and push back capital expenditures but continue moving forward with budget allocations for key projects and activities. A business already in financial trouble, however, will cut every cost it can.