Budgeting Blunders Your Business Should Avoid

Something you have to master when running a business is the art of budgeting. On top of making sure you have enough money to pay yourself, you need to make sure that you have enough money to pay for all your business expenses – all while forecasting an income that can change from month to month. Below are just some of the budgeting blunders that many budding business owners make and what you can do to avoid them.

Overestimating sales

Effective budgeting involves knowing how much money you are going to make in the future. A lot of business owners are naturally optimistic and set themselves high sales targets. However, you need to be realistic and consider that you may not always hit these targets. Use historical data analysis and market trend analysis to more accurately forecast sales and try to work within 80% of this revenue.

Being too generous with discounts

Discounts can be a great way to attract new clients, reward loyal customers, retain unhappy customers and get rid of nearly-expired stock. However, you need to consider how much discounts will affect your profits. Impulsively slashing your prices might lead to you getting less revenue than you budgeted for. Always consider your budget before putting in place discounts.

Borrowing without budgeting for repayments

All businesses have to occasionally take out loans. When disaster strikes, borrowing money may even help you stay within your budget. However, you need to consider the repayments and how this will affect your future profits. Agreeing to loans with large monthly repayment sums could greatly up your monthly spending and require you to greatly up your revenue to cover these costs.

Forgetting about tax

Setting aside funds for one’s tax bill is something that many businesses put off. However, when it comes to filing your tax return, you could deeply regret not leaving aside some money – you may be forced to dip into other savings or even take out a loan. Aim to put aside some money each month so that you can comfortably pay your tax return.

Not using software

Software can help to automate expense tracking and revenue forecasting, allowing you to budget more easily and more accurately. There are individual forms of software like job tracking software and inventory management software that you can use for budgeting different areas of your business. However, general accounting software can help with the bulk of budgeting – using data and graphs to help you more easily visualize how much money you have available to spend.

Having no emergency fund

When disaster strikes, it’s essential that you have money set aside to deal with this disaster. From machinery breakdowns to cyberattacks, there are many unexpected events that can be expensive to deal with. Having some money set aside will prevent you from having to rely on loans. Get into the habit of contributing some money each month into an emergency savings fund and budget for this when forecasting ahead your expenses. Ideally, you should keep this money in a high interest account to help your funds grow faster.