Understanding the advantages and disadvantages of budgeting will help you to create and use them effectively.
See Also
You’re budgeting wrong now — why the 50/30/20 method no longer works and how much you should save insteadDoes the 50/30/20 rule still work?Zero-Based Budgeting: Benefits and DrawbacksAdvantages 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 circ*mstances of your business:
- a budget could be inflexible, and not allow for unexpected circ*mstances
- 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
