AVOID THESE 4 BUDGET MISTAKES IN YOUR SMALL BUSINESS
Did you know that only half of small business owners have a budget?
As accountants here at Beaver & Bee, we feel like budgets get a bad rap.
Budgets might feel:
unnecessary
restrictive
like hard, dull work
We get where you’re coming from, even the word "budget" screams boring!
That’s why we prefer to call it a Financial Plan - doesn’t that instantly sound more positive and empowering?!
We believe financial plans create:
clarity and control
ease and peace of mind
a roadmap to the business of your dreams
Whether you are a seasoned budgeter or you’re thinking of creating your first ever one. Read on for our top four mistakes to avoid to get your budget working for you!
1.GUESSTIMATING EXPENSES
Most business owners underestimate business costs when creating a budget. You need to go beyond the obvious monthly cost lines and include those hidden, lumpy and variable expenses too.
If you have accurately logged your past expenses in your bookkeeping software (like Xero), you will find this a breeze.
Tip: Break down your expenses into categories such as fixed costs (rent, salaries) and variable costs (utilities, supplies). Don’t forget to include seasonal expenses and one-off costs like equipment repairs or marketing campaigns.
2.NO WrIGGLE ROOM
As we all know in business, things aren’t always smooth sailing and don’t always go to plan.
64 per cent of small business owners say they get hit with unexpected costs. You should definitely plan for the unexpected!
Build a financial cushion into your budget so it can handle surprise such as new equipment, sudden market changes, or unforeseen expenses.
3. UNREALISTIC SALES PROJECTIONS
We always encourage the female founders we work with to think big and push themselves out of their comfort zone. It’s important to be ambitious but a budget isn’t wishful thinking with numbers.
In fact, when sales projections in your budget are unrealistic, it can be demotivating when they are missed.
We suggest creating detailed assumptions behind your overall revenue projections to validate your budget and check it all stacks up.
If you’re feeling fancy, you can even go ahead and create different budget scenarios. This might look like a realistic case, a best case and a worst case.
4. LETTING BUDGETS GATHER DUST
Don’t let your hard work go to waste by “setting and forgetting”. Budgets are actually their most powerful when they are dynamic rather than static.
You can review your actual performance against your budget.
You can look at what variances (differences to actual performance) there were and question why. Variances are absolutely normal as we don’t have a crystal ball when we set a budget. But there are beautiful nuggets of learning in the process of understanding the differences to your expectations.
Don’t forget, your budget doesn’t have to be set in stone. You can make it responsive and update it based on new expectations.
Give yourself a huge pat on the back if you have a budget for your small business. You can use the pointers above to help you get more out of them.
If you don’t, it’s never to late to start!
Remember, budgets aren’t just about keeping costs down; they help you to set income goals and plan what resources you need to achieve them.
If you’re interested in financial plans and smashing those business goals, then please get in touch with us for a chat over virtual coffee.
