Small Business Budgeting Errors to Avoid
When you’re a small business owner, it can be hard to know where your money is going.
In this article, we’ll talk about five common budgeting errors and how to avoid them.
Underestimating business expenses
When you’re running a business, you never know what’s going to happen.
Maybe you’ll need to spend money on some new equipment or software, but forget to account for the training and maintenance time it will take your staff to get used to it. Or maybe your contract with one of your suppliers is about to expire and they won’t give you a good deal on renewal—so you have to cough up more money than expected.
The point is that these things happen, and in the end, the only thing you can do is try to make sure that when they do happen, they don’t leave you in an uncomfortable position financially.
No Goal Setting
When you’re planning your spending priorities, it’s almost impossible to do so without clear goals for the coming year. It’s important to identify, in detail, your business and financial goals and what you want or need to achieve in your business.
Think about what kind of business you want to run and how it will look different from other businesses in your industry. What are the biggest challenges you’re facing right now? How can you use money to overcome those challenges?
When you know where you stand, it’s easier to figure out where you want to go—and how much money it will take to get there.
Mistaking profit for profitability
Revenue on the books doesn’t always equate to cash in hand. Just because you’ve closed the deal, it may be a long time before you are paid for your services, and the money is in your bank account. Easier said than done, perhaps, but don’t spend money that you don’t have.
When someone buys something from you, they might choose to pay in installments over an extended period of time. Or they might pay in full upfront but then wait 60 days or more before sending a check. Either way, this can cause problems if you’re not careful about how you handle those payments.
No flexibility when it comes to budgeting
Don’t be afraid to update your forecasted expenditures whenever new circumstances affect your business. Several times a year, you should set aside time to compare budget estimates against the amount you spent and then adjust your budget accordingly.
For example, if you have a lot of cash on hand and it looks like you’ll be able to pay off some loans early, you may want to reduce your projected expenses in that area so that you don’t overspend and get hit with late fees. If you don’t have enough cash on hand for those loans and need a loan itself, it may be worth increasing the amount of money you allocate for debt repayment in your budget.
The key is to consider all possible scenarios before making any decisions about how much money should go where.
Here’s the thing: some of these mistakes are so easy to avoid! And others are so easy to fix. They might not seem like much individually, but when you’re looking at a few thousand dollars here and there, they can make a big difference. Just think of all the great improvements in your business you could make with an extra five or ten grand each year! If you want to prevent these errors from happening under your nose, it would be in your best interest to have a professional handle your bookkeeping for you! Our expert bookkeepers are ready to help you any minute, don’t hesitate to send us a message today!