Put simply, maintaining a good short- and long -range financial plan enables you to control your cash flow instead of having it control you. The most effective financial budget includes both a short-range, month-to-month plan for at least one calendar year and a long-range, quarter-to-quarter plan for financial statement reporting. It should be prepared during the two months preceding the fiscal year-end to allow ample time for sufficient information-gathering.

The long-range plan should cover a period of at least three years (some go up to five years) on a quarterly basis, or even an annual basis. The long-term budget should be updated when the short-range plan is prepared. While some owners prefer to leave the one-year budget unchanged for the year for which it provides projections, others adjust the budget during the year based on certain financial occurrences, such as an unplanned equipment purchase or a larger-than-expected upward sales trend.

Using the budget as an ongoing planning tool during a given year certainly is recommended. However, here is a word to the wise: Financial budgeting is vital, but it’s important to avoid getting so caught up in the budget process that you forget to keep doing business.

A budget is a powerful tool you can use to help you take control of your money.

Some people say they can't budget. They say it's too complicated or they don't know where to start. Nobody plans to fail, but sadly, most fail to plan for the future! The truth is, everybody who does a budget can see how it pays off. Basically, it helps you understand where your money goes so you can take control.

Spending a little time now on your finances can save you a lot in the long run. Remember, a budget helps you decide what you want and plan how to achieve it.

Budget for the Income Statement and the Balance Sheet

Many financial budgets provide a plan only for the income statement; however, it’s important to budget both the income statement and balance sheet. This enables you to consider potential cash flow needs for your entire operation, not just as they pertain to income and expenses. For instance, if you’d already been in business for a few years and were adding a new product line, you’d need to consider the impact of inventory purchases on cash flow. Budgeting only the income statement also doesn’t allow a full analysis of the effect of potential capital expenditures on your financial picture. For instance, if you’re planning to purchase real estate for your operation, you need to budget the effect the debt service will have on cash flow.