5 Common Small Business Budgeting Errors to Avoid
Running a small business requires business owners to handle many tasks, and often budgeting gets put on the back burner. However, it is one of your most important tasks as a business owner. Unfortunately, many business owners avoid budgeting because they don’t understand it.
Most of this misunderstanding comes down to small business owners’ most common budgeting errors. Here are the top small business budgeting errors you should avoid to make budgeting easier.
1. Not Making a Budget
The most significant mistake most small businesses make is assuming they don’t need a budget. Every business, large or small, needs one. Without a budget, you can’t make important financial decisions, including whether you have the capital to buy inventory, fix equipment, or even pay your employees.
If you aren’t operating on a budget, now’s the time to sit down with a certified accountant and create one. It doesn’t have to be complicated, but it should be detailed enough to help manage your money. It doesn’t matter if you’re a one-person operation or you have employees. A budget is essential.
2. Not Setting Financial Goals
A budget and financial goals go hand-in-hand. Without goals, you don’t have guidelines for your budget. You might know your regular expenses, but what else are you saving for, or what else do you want to achieve? Understanding your financial goals can help you create the most effective budget for short- and long-term results.
3. Not Budgeting for Taxes
One of your largest expenses will likely be your tax obligation. Every business pays income tax, but you may also be subject to self-employment tax and employment tax if you have employees. You might also have to consider sales, property, and franchise taxes. Most taxes are paid quarterly for small businesses, so budgeting is essential.
4. Underestimating Costs
Your budget must cover all costs, including the unexpected. For example, think about what you might need in the next couple of years. Will you need to replace equipment, higher more employees, or even move your location?
Underestimating how much you need can derail your efforts, leaving you without a workable budget. While no one can predict the future, you can best estimate your costs by looking at your long-term goals.
5. Not Leaving a Buffer
Things happen in life when we least expect it, and if you don’t have wiggle room in your budget, it could derail all your financing efforts. Leaving a buffer for the unexpected (good or bad) can help you achieve your goals without feeling like you have to sacrifice in other areas or make tough financing decisions.
Small business budgeting doesn’t have to be difficult. Think of it like a guide for your company’s finances. You like to know where you’re going while driving, right? You probably use a map or a GPS to get where you’re going at times. The same should be true of your business’ finances.
If you need help creating a budget for your small business, contact Murtha & Murtha CPAs today to see how we can help.