Forming a business budget is something that few entrepreneurs tend to enjoy. Indeed, not only is developing an annual budget often quite arduous, but it’s also just plain boring. Reviewing your business’s income and losses and examining the minutiae of your financial standing is a draining task. That’s why many business owners employ an accountant (or team of accountants) to handle the financial aspect of their operation. Still, not every business owner can afford such support. Small business owners who are looking to make better use of their capital need to identify and avoid these five common budgeting mistakes:
There’s an argument to be made that business owners shouldn’t seek to fix what already works. However, adopting such a mentality isn’t to be recommended. It’s crucial to attribute value to every purchase you make. Rather than assuming you spent your money wisely last year, scrutinize your decisions closely. Odds are, you’ll find places where you can cut back and not lose anything of great value.
Assumptions vs Projections
A detailed business projection should be backed up with years of data and research. If you’re going to attempt to predict how a new product will fare on the market, then you need to do your homework before forming a budget or forecasting potential revenue. Simply assuming that a new campaign will cost “x” amount of dollars without doing the requisite legwork could very well leave you in an uncomfortable financial jam down the line.
Failure to Invest
Strange though it may sound, forming a sound budget isn’t all about cutting costs. Instead, it’s more about finding smart investment opportunities both within your company and outside of it. Forgoing necessary tech upgrades, like pharmacy point of sale software for example, could put your team behind the eight ball and end up costing you more in the long run.
Forgetting the Human Element
Many business decisions –– particularly those relating to funding and finances –– are made with cold, black-and-white logic. Nevertheless, it’s unwise to completely discount the wider effects of your budgetary decisions. Deciding to shift capital from one department to another, for instance, will have a psychological impact on your team. Forgetting the real-world repercussions from decisions made in a vacuum is one of the biggest mistakes you can make as a business owner.
As in any walk of life, it’s important for professionals to understand their limits. There’s no shame in not knowing if a particular business loan makes sense, or if an interest rate isn’t feasible. It is, though, very risky to budget without proper knowledge of the task. Partnering with a dedicated accountant, then, could end up saving you a few massive headaches –– and a lot of money too!