When you are managing a small business, there will be a great deal of budgeting and financial planning that needs to take place. One of the major mistakes that many business owners make is to use their personal funds to do much of the budgeting. The money that comes into your business should be used for the purpose of expanding your business. You cannot afford to spend money that is needed to run the business on something else. To learn more about budgeting for a business, listen to this helpful advice.
Budgeting and financial planning are two very important aspects of owning a business. If you do not budget properly, you could lead your company into financial ruin. However, if you budget properly, you could also help to reduce your company’s expenses. The problem is that most people are not experts when it comes to budgeting. Some of the common budgeting mistakes that business owners make include:
Overlooking the overhead costs of running a business: Most business budgeting mistakes come from overlooking the overhead costs of running a business. These include, rent, utilities, insurance, and many other items. Most companies take these expenses lightly and ignore them altogether. As a result, they cannot calculate their costs accurately. If you ignore the overhead costs of running a company, you could lead your business into financial ruin.
Using incorrect figures for your budget: Some business budgeting mistakes also come from using the wrong figures for your budget. While you might be able to get an accurate estimate of your future profits using a sales figure or an operating profit figure, you will likely underestimate future costs, such as labor and supplies. To avoid these budgeting mistakes, make sure you have a well-defined budget plan that outlines all of your financial obligations. It is also important that you carefully consider your estimates, especially when it comes to your estimates for future profitability.
Not having a proper budget: Another common mistake is not having a proper budget. Many small businesses make the mistake of not following a proper budget. For example, they may assume that their business is already profitable and thus they do not need to calculate their long-term cash flow. However, if their long-term cash flow is negative, then their budget may need to adjust to allow for the negative cash flow. Likewise, if they underestimate their expenses for a particular month, such as rent or overhead costs, they may make incorrect assumptions about their profitability for that month. This can lead them to underestimate future profits.
Not balancing the books: Even though most small business budgeting mistakes are made when it comes to calculating expenses and inflating or deflating the profit line, there are also mistakes made when it comes to the balance sheets. One of the most common mistakes is not balancing the books on a monthly basis. In most cases, the accountant will not be able to notice the small amounts of discrepancies because they are so small. In addition, the monthly balances will usually be much different than the long-term balances. Therefore, it is extremely important to balance the books every month, even if only by a couple of hundred dollars.
Doing things incorrectly: There are also many common business budgeting mistakes that occur when business owners try to do things the “correct” way. For example, some business owners fail to determine whether or not the billing for products has been correctly recorded within the accounting system. In addition, they may also improperly calculate customer returns, which will show up as a charge on their personal credit card accounts. As you can see, there are many ways in which an owner can make a simple mistake that ends up costing them money.
If you own a small business, you owe it to yourself to make use of budgeting tools that will help you keep track of your expenses. These budgeting tools are often available at no cost and will allow you to quickly determine where most of your money is going. In addition, they will allow you to see which areas you should tighten up in order to save money. Although most small business owners tend to go with the first tools that they can find, there are always budgeting tools that you can use even if you have to spend a little money. The money that you spend on these tools will more than likely be worth it in the end.
Top 7 Business Budgeting Mistakes
There are so many aspects of business budgeting it is easy to overlook some important aspects and thereby messing up your budget. You need to make sure you cover all the expenses of your company while taking into account how much money you are making.
Be sure you work with your department heads for input on what needs to be spent in the various departments.
Business Budgeting Mistakes
Tip 1 – Forgetting Tax – If you are selling items, especially in other states, it is easy to forget sales tax on items. If you do not collect the funds from the person or company purchasing the goods, it needs to be a line item on your budget. You must be sure you have accounted for such expenditures in your business budgeting.
Tip 2 – Calculating Office Overhead – Office overhead in business budgeting tends to come down to the big items like rent, power, and insurance. But there are a number of other things that must be paid for.
Toilet paper, paper towels, drinks, and all types of other expendables must also be included. You even need to figure in service contracts on computers and other electronics.
Tip 3 – The Benefits Packages – An employee’s salary is more than just what you pay them. The benefits package you offer needs to be figured into every employee’s line item on the budget.
When making deals you need to make sure you take these added numbers into account when setting up your business budgeting plan.
Tip 4 – Unrealistic Goals – It is better to underestimate your financial gains than overestimate. If you work unrealistic goals into your financial budget, you might find yourself short at the end of the year.
Your business budgeting should include a good mid-line between your goals and what you think you will make.
Tip 5 – Not Planning for Surprises – Just as in life, when working on business budgeting you must include a little backup for surprises. Things break, you might need to travel to make a sale or any number of other surprises might hit your company.
By working a line item for such items you can stay on track. This is a good system of management budgeting.
Tip 6 – Forgetting to be Flexible – Be flexible in your business budgeting. You need to be able to pull from one area to put it in another area when things are not going exactly as planned.
Using the best budgeting software can help you track how you adjust funding to stay within your budgetary limitations.
Tip 7 – Not Planning for Reserves – It is tempting to start with as few funds as possible. But this is not a good idea when working on a financial budget. Most companies prefer to have three months of reserves.
This means your company can function for three full months with no income. This gives you a bit of safety, especially when things don’t go as planned.
Finding the best budgeting software will help you accomplish your business budgeting goals. Find something that you find easy to work with.
You don’t want to use something is too hard to use because you won’t be able to work with it successfully. Keeping those business budgeting mistakes in mind will help you in many ways, though initially, it is always difficult to adjust.