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If you use your budgets in isolation, it could lead your company to ruin

by , 01 October 2014
When you use your budgets, do you just focus on one area at a time? After all, you're working with your sales budget, so surely you must just focus on your sales, right?

Before you hastily agree, think about those expenses in that budget. How do you know how much you have to sell to make a profit?

If you create any of your budgets in isolation, you're playing a dangerous guessing game that could land you in serious financial trouble.

Here's why...

 

Here's why using your budgets in isolation could lead to financial disaster

 
If you treat your sales, production, labour and general budget, etc, as different entities, you run the serious risk of missing important financial trends in your business.
 
As one changes, it has an impact on the others. For example, if your direct labour costs changes, so will the direct labour budget. This has a knock on effect on your production and general budget. As your production expenses decrease, you'll need fewer sales to cover the costs. This means you can change your sales budget to allow for more profit.
 
And that means, if you use each budget in isolation, you may miss these interlinking effects. 
 
But you can avoid this problem just by doing this…
 
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Here's how to avoid the problems that come from using budgets in isolation

 
The best way to avoid this problem is to create an integrated budgeting system. Use Excel to create your budgets and link them together
 
This gives you an easy way to adjust all your budgets together. As you change one, carry the change over to the other budget it affects so they remain accurate.
 
By doing this, you can keep a handle on all of your finances and avoid major financial issues. 


PS. Find out how to improve your cash flow and eliminate simple accounting mistakes
 

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