You can never be too careful when it comes to your business finances. Since money is what makes the world go around, your business cannot afford to make budgeting mistakes. No matter how big or small your company is, business budgeting is a critical part of your operations that must be performed correctly. Here are three of the most common budgeting mistakes and solutions to help you steer clear from making them.
Mistake #1 – Neglecting Checks and Balances
A system of checks and balances is critical for success in small business, as no company can afford to spend frivolously. Many budgeting mistakes start because no one is monitoring accounts, double-checking records, and questioning where money is being spent. A reoccurring mistake is especially dangerous and can cost your business thousands of dollars in a matter of months.
How to Avoid Mistake #1: Don’t assume that someone else is keeping an eye out for mistakes. Ask questions and double-check figures often. After you have finished double-checking everything, a final triple-check would definitely be appropriate. A good checks and balances system also involves at least two people in the reconciliation process. Use two pairs of eyes for the weekly (or monthly) review process.
Mistake #2 – Over-spending on Advertising
It is common knowledge that advertising is essentially what generates and fuels sales. But one of the most common budgeting mistakes is assuming that advertising will impact sales immediately. Unfortunately, it usually takes some time for advertising campaigns to reflect in revenue. Up to one quarter may be necessary for anticipated sales to start impacting your bottom line. Over-spending on advertising leads to a gap in business budgeting.
How to Avoid Mistake #2: Beef up your advertising budget well in advance and do not assume an immediate return on this investment. Plan accordingly for the added advertising costs and always project additional revenue following the advertising campaign conservatively. It’s better to underestimate revenue than overestimate it. An overestimation may lead to a budget deficit which further compounds budgeting mistakes.
Mistake #3 – Underestimating Uncle Sam
Budgeting mistakes can be influenced by Uncle Sam because your business must faithfully pay its dues to the government. If you underestimate the amount due on your quarterly taxes, you risk foiling the entire budget for your business. A very basic business budgeting principle is not to underestimate Uncle Sam.
How to Avoid Mistake #3: Don’t pay attention to end-of-the-day balances. These numbers do not reflect sales tax or employee withholdings; therefore, the end-of-the-day balance does not provide an accurate reflection of revenue.
By avoiding these three budgeting mistakes, you can set your business up for financial success. Remember that business budgeting is also not a concrete process; the budget can be changed as necessary. Review the budget often for potential savings that may have been overlooked in the past. With a little discretion, planning, and proper management techniques, your business will never fall victim to budgeting mistakes.