Starting a business requires a lot of planning and number crunching. A budget can give you a bird’s-eye view of the short- and long-term financial strategy of the business.
Here are a few budgeting mistakes to avoid when starting your own business:
1. Not having a budget
Failing to create a budget could prove risky for your business. You cannot accurately track the finances of your business without a budget.
“This is a very common mistake, but a simple budget can be indispensable, especially when cash flow is tight. At the risk of being too simplistic, you’ve got to know where your money’s coming from and where it’s going. Take the time to create a budget and then make sure you stick to it, or, at least, be aware when you deviate from it. Ironically, under-spending in a budget category can be just as big a mistake as over-spending. You can ‘starve’ your business to death if you’re not spending enough on marketing and promotion, for instance.” (Source)
2. Creating a budget and ignoring it
Creating a budget is only half the job done. Sticking to the budget is the other half. A good budget is one that changes as your company changes. It is good practice to keep comparing your costs on the budget with the actual costs incurred to identify any trends that may require the budget to be adjusted.
3. Not budgeting for marketing
For your business to grow, you need customers to know about it. For this, you need marketing. Once you have customers, you will have sales. Do not underestimate the time and money that needs to be allocated for marketing.
“A marketing strategy is much like a business plan. It helps your business identify its audience and develop a plan for how to go about reaching that market. A well-thought-out marketing strategy researches, compares and contrasts the cost and the effectiveness of different advertising mediums and determines which promotional vehicles are best suited to the particular operation. The strategy then designates an appropriate budget for achieving its advertising goals and objectives.” (Source)
4. Not budgeting for tax
It is important to be aware of your tax obligations when you start a business. Failing to budget for tax is detrimental to your business. You need to include all taxes that your type of business may be liable for in your budget, and be sure to pay these on time. Failing to budget for tax, or not paying your tax, could result in high penalty charges and could potentially sink your business.
5. Not budgeting for contingencies
Unexpected occurrences may cause setbacks in your business and may require additional funds to be secured. Your budget should therefore make provision for unplanned expenses.
“Running a business to the wire is not only stressful, it also means you are one (even small) emergency away from bankruptcy. A contingency fund is essential to meet any unexpected expenses. It may mean reducing your profits (or even your salary) to create this slush fund, but this resource could be the difference between success and failure.” (Source)
Keeping track of your finances with a budget gives your business the advantage of communicating your long- and short-term goals effectively. Make sure that you create a budget that includes all the important aspects of your business so that you can track money coming in and going out, and so that you can accurately measure the growth of your business.
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