6 Common Business Budgeting Mistakes and How to Avoid Them
Financial hurdles are one of the top culprits for small business failures. If you don’t keep your finances in check, you’re setting yourself up for a disaster.
Between setting budget goals and tracking business revenues and expenses, you have a lot to think about! You might be making some serious business budgeting mistakes without even realizing it.
We’re here to talk about a few budgeting mistakes that can ruin a business. Read on to learn more.
- Underestimating Costs
If you’re a somewhat new business owner, it’s really easy to actually underestimate the amount of money that you’re going to need to keep everything running.
Part of your initial business plan should include a budget. Before you even start buying things or hiring people, your budget should show all of your potential expenses.
It’s always best to overestimate costs. You’d much rather have money left over than be scrambling to cover the bills at the end of the month.
When you’re breaking down the costs of doing business, either at the beginning of your business venture or when you’re re-evaluating your budget, include any potential cost.
Are you planning on bringing in a ton of new workers because of your successful first fiscal year? Are you starting a new marketing campaign? Are you switching to higher-quality materials to improve your products?
These may seem like small shifts, but they make a large difference when it comes to your budget.
You need to consider (among other things):
- Paying employees or contractors
- Travel expenses
Always overestimate costs.
- Overestimating Sales
Speaking of overestimating, what you can’t overestimate is sales (or profits, depending on what type of business you’re running).
Let’s say you had a really great first year of business. Your sales have been ramping up, and that trend doesn’t seem to be stopping. Because of that, you’ve decided to increase your budget for the upcoming year because, of course, you’ll have all of that extra money coming in, right?
In a way, you’re using business budget data to make your decision. However, you’re also speculating. It’s just as possible that sales will plateau, or even that something terrible will happen and they’ll fall.
Because you’ve overestimated sales, however, you’ve been spending more money than you can afford to. This sets your budget off and sets you on a path toward business destruction.
- Not Tracking and Checking-In
So you’ve set a budget at the beginning of the quarter, and it looks great. It’s based on data, your accountant approved it, and you’re ready to go.
You should check in more often than once per quarter to make sure that you’re on the right track. Too many business owners forgo tracking because they’re confident in their budgeting skills.
You may check your budget at the beginning of the next quarter and realize that you’re no longer on track. Now you have to rush to cut costs for the next quarter.
When you keep track, this isn’t a problem. You can make small adjustments as you go and avoid any budgeting disasters.
- Setting Unrealistic Goals
All budgets start with goals, but new business owners often struggle to set realistic goals. Your goals should be SMART.
SMART stands for:
In other words, you should know exactly how much money you want to have by a specific time, and you should have a way to measure it. It needs to be realistic (meaning that making 1 million dollars in a quarter likely isn’t an option if you’re a new small business owner).
By setting SMART goals, you’ll set yourself up for budgeting success.
SMART goals can be both long-term and short-term. Set SMART goals for the quarter and SMART goals for the entire fiscal year.
- Not Considering Unexpected Expenses
It’s almost impossible to expect the unexpected, right? Well, when it comes to being a smart business budgeter, you’re going to have to make an effort. Expecting the unexpected might save you at the end of the quarter.
Always leave some extra room in your budget that you won’t use for anything else. Don’t assume that money will be extra or that you can just treat it as pure profit. Instead, imagine that something is going to happen that will force you to spend that money.
Now, if something unexpected pops up and you have new expenses, it won’t be a problem (or at the very least, it will be a smaller problem).
“The unexpected” could be a sudden IT blackout, a data breach, theft, a need to relocate, or even a natural disaster. You might think that these things will never happen to your business, but they can.
- Trying to Do It On Your Own
If your business is a one-person operation, you might be able to keep track of your finances and budgeting needs on your own. Once you start expanding, however, it’s best to get help.
You could hire an accountant or a financial advisor, but it can also benefit you to invest in some professional budgeting software (like Allied Health budget management software, for example).
Budgeting software can help keep you on track between quarters. It’s far easier than trying to track on paper or manually.
You have so many things to think about as a business owner. Take some of the pressure off by hiring a pro and using high-quality budgeting software.
Avoid These Business Budgeting Mistakes
Correctly managing business spending should be one of your top priorities! Keep these business budgeting mistakes in mind so you can keep yourself and your business on track.
When in doubt, invest in good budgeting software and hire a professional! You don’t have to do everything alone.
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