Around 90% of startups fail. But, of course, you don’t want to be one of those guys, so how can you make sure you keep your business afloat?
Startups fail because they run out of money; it’s as simple as that. But it makes sense; managing finances to keep a business up and running is much easier said than done. So how can real companies implement real budgeting strategies to save real money?
In this article, we’ll go over a simple definition of budgeting for your company, 10 mistakes business owners make in terms of budgeting, as well as 10 tips for finding success.
Simple Definition of Budgeting for Your Company
There’s a whole lot of definitions out there. To keep it simple, we’re going budgeting as the wise use of money to save and invest it. It also can be a specific dollar amount for how much can be spent in one area or another.
When it comes to budgeting, it’s easy to overcomplicate things, so let’s keep it simple. There are great budgeting habits and some not-so-great habits out there as well. To start, we’re going to dive into 10 budgeting mistakes business owners make and how to avoid them.
Typical Budgeting Mistakes Business Owners Make
Overspending
If you want to make money, you have to make more than you spend. Unfortunately, overspending is an easy habit to get into and tough to get out of. This can range from spending too much on furniture in the office to overpaying clients that just aren’t that great.
To combat overspending, track how much you’re spending and what you’re spending money on. Consider if the product or service you’re buying is really worth the money you’re putting into it. If you find you are overspending in some areas, seek out discounted prices or consider cutting the cost. Consider hiring someone on your team rather than hiring a client. These small changes can help you save more and more in the long run, even if it takes a bit of organizing.
People Don’t Invest Enough Back into the Business
When you make money, you have to decide what you’re going to do with it. It’s easy for business owners to want to spend the money they make on new cars or international trips. While doing that is great, you have to be wise with the profits made.
Each quarter, sit down and consider how much of the profits are going to pocket, and how much is going back into the business. This may take some trial and error, but five years from now, you’re going to thank yourself for doing it. Owners may not want to put more money into their business because they want the money for themselves. Short term, this mentality may be sustainable, but long term, it brings companies down. Investing back into the business is one of the best budgeting habits you can make for yourself and your company.
Budgeting isn’t a priority
It’s easy to let budgeting get away from you. As a business owner, you’re worried about your clients, employees, quarterly goals and everything else. Budgeting may not be the number one thing on your to-do list. While it may not have to be the number one thing to do every day, it’s still vital to your business. As soon as your business is up and running, make sure that budgeting tasks are a priority.
Take time to consider the finances and the budgets that you’re working with. This doesn’t have to be an everyday thing, but it should happen on a monthly basis. Set aside time to look at the numbers weekly, biweekly, or monthly; whatever works best for you. Consistently setting apart 30 minutes or an hour to review finances and budgeting is going to save your money little by little here and there. Over time, those savings are going to rack up, which you can put right back into your business.
Many Business owners don’t make a budgeting plan
We all want to save money for our businesses, but pursuing a goal without a plan doesn’t lead to success. For each quarter and year, spend a meeting with your team to create a budgeting plan for the year. Planning helps you take a specific action, and it’s in the doing where goals are achieved, and success is found. Set goals make plans. It’s as simple as that.
No Self Correction
Once you have your plan set and put it in motion, look for ways to improve it or make any needed changes. You’re probably going to encounter obstacles that you didn’t see coming, and making changes to your plans or goals isn’t a big deal. Ask employees for new ideas and get new opinions on budgeting topics. The budgeting topic can be brought up once or twice a month, but consistently brainstorming as a team will help dramatically.
In addition to asking employees and reviewing the plan yourself, seek ideas from mentors and other business owners. Mentors and business owners know your situation better than employees will, and can offer insight that your team may not be able to. With their new ideas, you can discuss them with your team and decide what’s going to be best.
Over-Optimism
Being optimistic is a great characteristic in a business owner or leader. However, you must stay realistic with your goals and plans. Being new in a certain market, you may not explode as some business owners expect. In fact, it may be better to be pessimistic when considering how much you’re going to make quarterly.
They Don’t define needs and wants
Defining needs versus wants is vital when budgeting. Without a specific list differentiating the two, businesses run the risk of overspending. If you haven’t made a list of needs and wants, be sure to get one started soon. When considering these two, think about what is vital to the business, what is really worth your money, and what gives you the most value?
Business owners can easily get caught up in the fluff of everything, and time is money. Focus your time and money on what gives back to you the most. Common wants could be nice furniture in the office, a mini-fridge or even a bigger monitor. Consider if these things make you more productive, and if they’re worth your money.
They don’t set an emergency fund
When budgeting, it’s vital that you create a safety net for yourself and your business. Once quarter sales may be skyrocketing, but others may be more stagnant or even decreasing. As a business owner, you want to keep your company alive long term, and that’s exactly why you need the emergency fund.
Consider how much the company spends for any given quarter or year. Once you have a specific number in mind, think about how many quarters or years you want to have ‘safe.’ This will vary from business to business, of course, but building that safety net may save you. Always keep in mind that you’re working towards the best, but preparing for the worst.
It’s not a part of Company Culture
Company culture makes a huge difference when it comes to building habits. Creating a culture of thriftiness can pay dividends in the long run. Encourage employees to seek out discounted products or services. Once your company is big enough, consider what the company’s core values should be. You can talk about this with your employees, but make sure that frugality is part of it. These culture changes will lead employees (and yourself) to save $50 here or $100 there. When those savings happen consistently, you’re already paying yourself back.
Plan for taxes
The last mistake that we’ll go over is business failing to prepare for taxes. Thinking about taxes quite honestly isn’t a priority for many business owners. Whenever calculating how much you’ll make from a sale or working with a client, consider how much of that is really going to be yours. There are plenty of free online tax calendars which you can use. Plugging the numbers in for monthly income and yearly income will put things in perspective. This will help you further budget properly and use money more wisely.
Now that the mistakes are out of the way, let’s talk about the good habits businesses can build to budget better.
Understand your Organization and Industry
As a business owner, you need to know your business and industry like the back of your hand. Take time to research what’s new in your industry. This doesn’t have to be every day, but in the mornings, while you drink your coffee, read articles on what’s new. When it comes to your organization, think about what strengths and weaknesses you see in yourself, your teams, and your employees. How can those strengths be made stronger? How can the weaknesses be improved, and how can you convey that message in an innocuous way? Taking the time to just think about and consider these ideas will make you more well-rounded, and get you more out of yourself and your employees.
Set Goals
The first good habit you can get your company into is to set goals. If you’re aiming for nothing, you’re going to hit it every time. If you’re aiming for something direct and specific, you increase your odds of hitting it. Next, think about how you will track success and where you want the company to go. This goes for budgeting money and across the board.
When setting goals for budgeting money, consider how much you want to save each week, month, etc., then keep track. Next, write down how much you saved on deals, with coupons, or discounted prices with clients. If saving is really a priority, you’ll surprise yourself with how much you’ll save.
Be Resourceful
When it comes to budgeting and saving money, there are so many resources out there. Consider which of these are in your budget and how much time it’ll take. There are a million books and online articles about budgeting specifically for business owners, but they’re not specific to you and your business. Consider hiring a financial advisor, who will help you keep on track and offer ideas specifically for you. Both of these options are great for business owners, but it’s up to you to decide what’s best for your company.
Time is money
This is always important to keep in mind, as it will motivate you to do better. As the owner, where you spend your time is vital. There are small projects that can be set to the side, and projects that you can pay an intern or employee to do. Do the work that only you can do. If more work is available, assist others where it’s needed.
By doing this, you get the most out of your time and efforts. You’re not working on fluff and that’ll pay you back. Consider what you’re doing and how you can get more out of the time you’re putting in.
Cut costs wherever possible
This is the most basic idea for budgeting, but it is one of the most vital. Look at your fixed costs and variable costs each quarter and ask yourself if you can cut any of them down or if you can get any for cheaper. This may be serviced from clients to the things you put in the office. Either way, it’s important to cut out the fluff and keep in the important pieces of the puzzle.
Reward yourself for hitting goals
Budgeting takes a lot of effort on your part. You set goals, make plans, and implement the self-control you need for a successful business. If you think about the whole process, that’s tough! However, rewarding yourself and your employees is a great way to keep motivating everyone to budget. It also helps prevent burnout in the long run.
There are tons of ways to reward the whole team for saving cash throughout the quarter or the year. If you’ve saved tens of thousands, go to a professional sports game, have a casual business dinner or even give out bonuses to those who deserve it. Be sure to have fun with it, but don’t spend more than you’ve saved or budgeted.
Keep everyone accountable
Accountability is a huge part of the budgeting process. If performance is measured, it will improve. However, if performance is measured and reported, the rate of improvement will increase. This can just be small check-ins with employees and yourself to see how they are doing with the budgeting goals. How much time are they spending seeking discounts or ways to cut costs? Is it too much time or too little? How can you direct them in the best ways?
It’s important to correct yourself and others in a kind and respectful manner. People make mistakes, and that’s totally okay. Try to put yourself in their shoes and after you make corrections, point out particular strengths they have and how much they contribute to the team. This motivates them to do better in budgeting and other areas.
Plan to increase revenue
It comes down to how much you’re making and how much you’re saving when it comes to budgeting. We’ve discussed a lot about the saving part, but let’s dive into how to increase revenue.
The first thing to do is to focus on your strengths. For example, which customers are consistent and reliable? Ask yourself how you can build a better relationship with these customers and if your relationship is at the point where you could ask for a discounted price.
The second thing to do is to consider if you should increase your prices. This is going to affect the number of customers you’ll have, so be careful. However, if you feel that the goods or services you offer are undervalued, increase the prices to where they should be.
Use a budget calculator
Online budget calculators are super convenient because they do all the hard work for you. You just put in the amount you’re making, how much you’re losing in which areas, and let it do all the math. Omni Calculator is a great option for businesses, although you may find alternatives that work better for you.
Use Historical data
The last thing to do is to dive into the trends of the past. This can be for your company, industry, or the national economy as a whole. Look back at performance on these three scales and determine trends you see. When it comes to your industry and the national economy, many articles are out there to keep you up to date with what’s happening.
Historical data will help you understand if storms are coming and when or if it’s time to take risks. Discuss your findings with others in your business or industry, and bounce ideas off each other. As you improve your knowledge of your company, industry, and the national economy, you’ll be able to play your cards better to bring in more cash and save more as well.
Conclusion
Budgeting is vital to a company’s survival, and businesses will make easy-to-miss mistakes and won’t implement everything they can. So instead, consider which areas your business can improve upon. What good things can be integrated, and what not-so-great things need to be cut? As you have this conversation with yourself and colleagues, you’ll further improve your business to where it deserves to be.
