5 Budgeting Mistakes to Avoid When Starting Up a Business
A startup company’s budget is essential to their success. However, there are a few mistakes many startup’s make that can greatly hurt the bottom line in the first few years of their business. In this article we’ll be going over the top 5 budgeting mistakes you should absolutely avoid when you’re launching a new business.
1. Not putting a budget in your business plan
Making a budget is an essential part of running a business—especially in the beginning. First, you’ll need to understand what costs you’ve got to cover. Materials? Production? Software? Team members? Figure out what’s necessary and learn how much it will all cost.
Next, you’ve got to know where your funding is coming from. Are you bootstrapping and saving a little from each paycheck at your day job? Will you take out a loan? Could you start a Kickstarter? Or maybe you’ll be seeking venture capital funds.
Add all of this to your business plan so you can present your business to the bank, your investors, or whoever else may choose to invest in your business. It is absolutely vital to have a deep understanding of your startup’s financials. This way, you can move forward confidently knowing what kind of sales you need to have to keep your business on track for great success.
2. Not following the budget
Now, it might be easy to plan your budget, but it’s not at all easy for many companies to stick to their budget. In the first year or two of your startup, you may need to take a look at your budget a few times to make needed adjustments and additions.
As you move forward through the startup process, you may incur new expenses you hadn’t planned for. This could be a number of things such as: rent for your storefront being more expensive than you thought, needing to hire an employee earlier than you planned, or you could end up having to purchase more materials than you initially thought.
Whatever other costs you incur, you must apply them to the budget to keep track of them and ensure your budget is up to date. You must also be honest with yourself about unnecessary expenses. It is important that you follow the budget you’ve set for yourself as close as you possibly can.
Obviously, there will be mistakes here and there but you can’t afford to spend wildly outside of your budget in the first few years of your startup. A great way to follow your budget easily is by putting it into an excel sheet or Google sheet. Then, as you incur business expenses you can add them in right from your phone and keep close track of your expenses.
3. Not Keeping Track of Expenses
Which leads us into our next point: you must keep track of your expenses. Failing to track the expenses your company incurs can be detrimental to your success. If you don’t know how much you are spending, you don’t know how much you need to make in order to turn a profit which is a dangerous place to be in.
Keep track of your expenses closely with accounting software like the WaveApp or FreshBooks. This will also help you when tax season comes around because you won’t have to go through the past year of expenses printing all of the receipts, checking all of your statements, and trying to calculate your expenses. Instead, they’ll be neatly organized for your CPA to use when it comes time to file for your return.
4. Not hiring a professional to do your taxes
Unless you’re an expert in filing for taxes, please, please, please leave it to a professional. Filing for your tax return can be a long and complicated process, but if it is done right it can greatly help your business. Depending on your year and expenses, you may be eligible to get thousands of dollars back on your tax return which could really help your business make new leaps.
You don’t want to leave this up to chance. There are many tiny details that go into building a complete tax return, and you want a seasoned professional ensuring you get as much money back as possible. So, please hire a CPA to complete your tax returns each year. (This will also ensure you aren’t in any trouble should the IRS decide to audit your business!)
5. Not reviewing the budget routinely
Lastly, you must review your budget routinely. Every business undergoes multiple changes before really becoming profitable. While you may be able to roll with the punches, your budget won’t unless you do something about it. Right now, make a commitment to yourself to review your budget every month or every quarter depending on your business’ needs.
This will help you keep track of where you are on expenditures, analyze where you can cut costs, and see where you are on your track to profitability. You may need to make adjustments, add expenses, or even subtract some. Either way, keeping a close eye on your budget is essential to ensuring your business is profitable and successful.
We’re all confused in the beginning, but there are so many online tools to help you understand your startup’s budget that you’ll start finding your way in no time. Avoiding these 5 budgeting mistakes will help your startup business stay financially healthy and keep it on an upward trajectory of growth.
Meet the Author: Shauna Armitage
Shauna is a Marketing Director or Fractional CMO helping early-stage startups scale with effective strategies, creative solutions, and unparalleled integrity by making the most of small budgets for maximum impact.
As a vocal advocate for women in business, Shauna is on a mission to redefine what it looks like to be a working woman and to support other women doing the same. She spends her free time traveling with her husband and four kids while drinking Coca-Colas. Connect with her on Instagram at @shauna.armitage.