A budget gives business control and adequate planning mechanisms to manage cash inflow and outflows. It includes identifying in advance the amount of money required in every month regardless of your revenues. Having good sales doesn’t always mean money will still be available because you may have slow payables but high bills, a fact that may make you lose the ability to order goods and services which runs your business. It is advisable for business persons to create a cash flow budget showing expected actual income and monthly expenses even after creating a master budget which usually shows your average monthly income and expenses.

Cost Controls

Ability to control costs has been a significant benefit of financial planning. Creating annual budgets provides you with an opportunity to see your prominent expenses, plan for them, reduce them if need be, and monitor them for you to know whether you’re on the right path to achieving your goals. It is also advisable to track your budget every month to ensure that your revenues are on the same track with your expenses and targeted profits. Additionally, it will enable you to identify whether or not you projected your costs accordingly.

Budgeting also allows you to prioritize how you should spend your money, tracks your money movement, and informs you when you need to stop wasting. It is the most significant planning tool which helps you change your financial future and gives you the authority to make changes as required.


Budgeting is very flexible as it allows you to move money between different departments and spend it accordingly. This prevents you from overspending your money, recognize issues, and adjust your expenditure based on any arising business issues. Budgeting also helps you to adapt to cover unaccepted expenses when they happen, and also provides a clear insight into the possible use of your money on additional plans. Financial budgeting makes it easy to identify constraints and bottleneck with a lot of ease. In addition, budgeting also makes it easy to provide specific sales targets, cash investment, and capital expenditures for plant assets. Apart from this, it provides a basis for inventory production.

Accurate Tax Compliance

Financial planning includes estimating and adjusting your taxes as your sales rise and falls. It helps you avoid penalties, fines, and liens against your business as a result of failing to pay income or payroll taxes. For instance, if you’re a business person whose chosen to pay their taxes quarterly, then the budget will help you in planning the payment by setting that money aside to avoid spending it on other things. Working with your accountant can help you set up your tax payments and make them on time.

Performance Evaluation

Budgeting allows you to work with your employees when setting goals for a budgeting period and even tie bonuses or incentives to their level of performance. A financial budget allows creating budget versus actual reports which will highlight feedback to the employees on ways they are progressing towards their goals. This method of approach is most common when it comes to financial goals even though operational goals such as reduction of product rework rate can also be included on the budget for performance appraisal purposes. The performance budget leads to optimum utilization of resources such as skills of the staffs, finances, and management of time.

From the examples provided above on the benefits of financial budgeting, it is evident that budgeting is a valuable tool for achieving the best results when doing business. Therefore, for a budget to be successful, it should provide sufficient detail to reflect expected revenues and costs for each unit.

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