It's the beginning of the year, and if you haven't started planning your budget for 2018, you might find yourself panicking to get your business finances on track. Planning a budget year after year can be challenging and, let's be honest, tedious, for most business owners.
Developing a concise budget for your next year is one of the pillars of financial success for business. This year, as you start crunching numbers, beware of these common budgeting mistakes many small business owners make.
Not Having a Budget at All
Not creating a monthly budget, yet alone an annual budget, can hurt your business. Creating a budget for your business will help establish how much money you have, what you need to spend, and figure out cash flow to meet business needs. A budget is a living, breathing document that should be visited frequently. With a budget in place, this can help your business minimize risk.
Starting a budget for your business doesn't have to be complex or scary. Creating a balanced budget will not only set you up for future success, but will help you avoid headache down the road. If you feel stuck, Freshbooks’ 5 Step Plan is a great place to reference when starting your budget planning.
The first step is to find out what your sources of income are. From there, determine your fixed costs that repeat monthly. There will always be expenses that also happen monthly that may not be fixed, so the next step is to pinpoint those expenses to budget accordingly for that specific forecast. Don’t forget your larger, one time purchases, such as new equipment, and include those in your budget as well. Income sources, fixed costs, variable expenses, and one-time spends will help you as a business owner pull together a budget to start with for the new year.
Not Budgeting for Growth
The goal of any business is to grow, whether that is growing your team or growing to attain more customers, there should always be a budget in place to market your company for growth. It can be overwhelming picking what marketing strategies work for your business, but regardless there should be a budget set in order to pick the right marketing that fits your business.
According to Entrepreneur, new companies that have been in business for one to five years should set 12 to 20 percent of their gross revenue or projected revenue on marketing, whereas established companies that have been in business more than five years should allot 6 to 12 percent towards marketing. This includes identifying your brand, website, social media, advertising, content, and events. Each channel of marketing may differ on how much to spend on each area, but to grow your business there should be a significant amount focused on advertising. When your business is focused on growth, having a marketing budget will focus your efforts on where you spend your money for new potential business.
Growth is a good problem to have as well and can lead to more people to joining your staff. Separate from a marketing budget is your recruitment budget to bring on new team members. Consider your efforts through recruiting events, job boards and advertising, and the actual salaries of new hires when creating your recruitment budget according to Workable.
Underestimating your expenses will become a burden when it comes to unexpected costs. One plan for your budget is to overestimate expenses. Plan for large purchases early if there is going to be expected equipment to add or replace in your business. Some of the most common things businesses forget to budget for are taxes, travel cost, office maintenance, etc. Running a business is a lot more than just paying your employees’ salaries and keeping the lights on. By realizing how much your expenses cost, it can save you headaches for mislead budgeting.
Underestimating your revenue versus expenses will help you plan more realistically if there are any emergencies or setbacks within your business for the year. With the appropriate planning with your revenue and cash flow, it will help your business be more flexible and emergencies won’t be as much of a burden. Make sure to keep your checks and balances in place when it comes to underestimating your revenue and overestimating your expenses to have a successful budget.
Not Preparing for Tax Season
Uncle Sam catches up on business owners every year. Utilizing a tax preparer or CPA to project income and expenses annually will help prepare you for tax season appropriately. According to SBA’s 8 Small Business Tax Preparation Mistakes to Avoid, they recommend to separate personal and business, avoid payroll mistakes, and keep your records up to date.
When it comes to paying attention to details for your tax preparations, make sure you're not overpaying. Keep excellent records throughout the entire yearand look out for deductions when compiling your records as well. To learn more about tax season do’s & don’ts, check out our tips here.
Starting Too Late
Creating a budget should be one of the first things you do as you get started with your new business. Unfortunately, many new businesses owners (and even some veteran owners) wait too long to budget whether due to forgetfulness or outright fear. But starting too late is better than not starting at all! Refocusing your efforts on making a budget will continue to help your business throughout the year.
While it’s certainly not the most exciting task you have as a small business owner, creating (and keeping) a budget is critical to ensuring the continued success of your company. With a little focus and determination, you can avoid making mistakes in your budget and start 2018 off strong.
What are your budgeting tips for business owners? Share in the comments below!