Business budgeting

Understanding the advantages and disadvantages of budgeting will help you to create and use them effectively.

Advantages of budgeting

There are a number of benefits of drawing up a business budget, including being better able to:

• manage your money effectively
• allocate appropriate resources to projects
• monitor performance
• meet your objectives
• improve decision-making
• identify problems before they occur - such as the need to raise finance or cashflow difficulties
• plan for the future
• increase staff motivation

Disadvantages of budgeting

There are also some potential disadvantages to budgeting, depending on the circumstances of your business:

• a budget could be inflexible, and not allow for unexpected circumstances
• creating and monitoring a budget can be time consuming
• budgeting could create competition and conflict between teams or departments
• if targets are unrealistic, employees could become stressed and under pressure