3 Bad Budgeting Habits to Kick to the Curb
|In her professional lives across the United States, Natalia Autenrieth, CPA has audited Fortune 500 clients as part of a Big 4 team, built an accounting department as a controller of a large hospital, and served as a CPA consultant to municipalities. Today, Natalia coaches in the financial industry and writes about business finance, financial technology, and personal money management. Her ghost-written articles have appeared in thought leadership and expert blogs, as well as Kiplinger and Accounting Today. Read more about Natalia and her practice at www.AutenriethAdvantage.com.|
3 Bad Budgeting Habits to Kick to the Curb
If there is one part of doing business that most business owners dislike (other than taxes), it’s budgeting. Budgets are often seen as a necessary evil, an exercise to get done as quickly as you can so that you can get back to running the company. Here are three common budgeting mistakes that can get a small business owner in trouble.
#1: Unrealistic goals
The budget is only useful if it gives you good information to set your sights and correct your course. Said another way, if your map is wrong, the road to your destination may not end the way you like. It’s critical to invest time and thought into building a budget that’s as accurate as possible.
Keep in mind that reality is virtually guaranteed to look different from your best guess, no matter how hard you’ve worked at making it. Don’t worry too much about getting the numbers exactly right instead, focus on dynamic relationships between the numbers. How are your operating expenses tied to your sales? Sometimes the relationship is linear, and sometimes expenses jump as you hit the next tier.
Small business owners should also stress-test their budgets with what-if scenarios. What happens if a key supplier or customer goes out of business? What about a possible bump or boom in the economy? Asking these questions will improve your preparedness for whatever happens during the year.
#2: Too much focus on the revenue
Revenue is a great target. It’s easy to track. It’s the biggest number in your budget, and watching it climb up makes everyone happy. However, not enough focus on the bottom line can be disastrous.
No matter how small and efficient your business model, no small business owner gets to keep everything they bring in. There’s payroll, rent, supply costs, and taxes. The exact expense mix will vary by business, and it’s important to keep a close eye on the money flowing out of your business.
#3: Failing to set aside the money for quarterly tax payments
Taxes are inevitable. Filing timelines are known ahead of time. And yet, many small business owners are caught off-guard come March 15. Coming up with a big tax payment in a pinch can strain cashflow and create a lot of stress, especially if it requires the business owner to dip into personal savings or resort to financing.
There is a solution. It’s simple, but it does require discipline, which makes it a perfect issue to address during the budgeting cycle. Plan for tax payments at the lowest possible level and bake it into your normal workflows. For example, if you pay yourself (or your employees) bi-weekly, make that your time to set aside the money for taxes. Small transfers placed in a designated account will add up over time and you will be happy you had done it come tax time!
3 bad small business budgeting habits to kick to the curb
A great budget can become a useful tool to help grow your company and build your personal safety net. In order to get the most out of it, make sure that you begin with an accurate baseline. Focus on the bottom line as well as your sales, and create a habit around setting aside tax money during the year.
There is one other common budgeting mistake that costs small business owners a lot of money. It’s hiring the wrong people. This may not look budget-related, but an average cost of a bad hire is 30% of his or her first-year salary. That can punch a hole through your operating expenses, and if you need to replace a mid-level employee, the cost gets even higher. So, don’t cut corners in the hiring process. Check references and insist on the skill-set that’s required for success.
Hyperlink to the US Department of Labor reference: https://www.hrexchangenetwork.com/hr-talent-aquisition/articles/what-s-the-real-cost-of-a-bad-hire