Though it has been considered the norm when accounting to prepare budgets annually, it is not always a practical way to discern the financial status of a company, particularly that of a smaller business. While budgets are not a cast iron representation of a business activity, they are a great financial aid when forecasting and projecting the coming months of its trading.
Why Quarterly is Better Than Annually When It Comes to Budgets
A Quarterly Budget Takes Account of Recent Bank Figures:
When you prepare quarterly budgets, it is apparent that you will be working with a more recent bank balance figure and an updated profit and loss forecast. This means that when you do create your budget for the next few months, you will working to a more accurate figure than you would have been had you prepared a budget for a full twelve months ahead.
A Quarterly Budget Can Throw Up Potential Problems:
Without having to wait until the year end, working on a quarterly budget can allow for any possible significant financial outlays that are going to need to be implemented in the coming months. If you start the beginning of the year believing there will be no substantial monetary consideration of say machinery and equipment, you will not account for the possibilities of replacing such items. However, if just a few months into the year, the worst-case scenario does happen, and you need to rethink this decision, you can incorporate it into the next quarterly budget to account for it.
A Quarterly Budget Offers More Control Over the Whole Business Model
If you can get all the staff involved in your quarterly budget in some way, you develop a better chance of getting them to understand how budgeting and costs are vital to the general running of the business. Thus it means that they may be more likely to consider working with you on them as they are made aware of just how their actions can affect the figures of the budget regarding productivity and overall spending.