Avoiding Simple Budgeting Mistakes at Your Work
Creating a financial budget takes time and effort for any business professional. There are many elements that go into the budgeting process, from formulating the objective, to defining priorities to researching costs. Even for financial professionals, so many variables in budgeting can cause things to fall through the cracks. If you’re not a financial pro, the risk is obviously greater and it’s not uncommon for people to make budgeting mistakes.
Here are four common budgeting errors you need to avoid:
1. Not enough flexibility
While it’s important for a budget to have a clearly defined structure and breakdown of expenses, there should also be room for additional costs that may pop-up along the way. This requires preparation on the business professional’s end, to determine an amount that provides a little leeway if things are more expensive than planned. Business expenses may fluctuate from month to month or year to year, so it can be difficult to plan a budget and stick to it. Planning to spend more will prepare a company to go over budget and reward the company if it stays under its threshold.
Lack of budget management can lead to large problems late in the year. Disregarding important tasks, including reviewing receipts and expenditures can spell trouble for a business. It is crucial for business owners to keep track of expenses and invoices, as well as other financial records, to ensure the enterprise doesn’t encounter financial instability later on.
3. When budgeting, don’t forget your uncle … the one named Sam
It’s stunning how many businesses fail to account for the taxes they will inevitably owe the government. Sales tax on revenues and employee withholdings ultimately must be paid even though the money sits in your bank accounts temporarily. Don’t count this money as holdings, otherwise you’re at risk of budgeting for future projects and costs that you will not be able to afford.
4. Assuming revenue indicates positive cash flow
A common problem for enterprises is spending money they don’t yet have. This issue usually occurs when businesses believe that their revenue means immediate money to spend. Instead, there is a transition period from the time a transaction is completed and its availability as actual cash. Companies need to prepare in advance for certain purchases that use revenue for purchase. Foresight will ensure that businesses have the appropriate funds and don’t overspend.
It is easy for business professionals to make mistakes while creating and using their budget. Although many of these errors can be fixed, repeating the same mistakes won’t change the outcome. You will still overspend which results in revenue issues and probable tax problems. Establish a semi-flexible budget and get all your records organized. Afterwards, you can plan how to use your revenue with confidence.