Everyone makes mistakes, but when you’re a business owner you want to keep them to a minimum, especially when it comes to your money. Even successful business owners have made some financial mistakes in the past, but it’s important to learn quickly from them and adjust your strategy to optimize your revenue. Here are 3 big mistakes small business owners make when it comes to budgeting that you should avoid at all costs.
1. Underestimating Your Expenses
It’s easy to see a nice cash flow and feel good about the status of your company, but before you start spending your hard-earned money, you need to make sure that you have made realistic projections about your costs. Often times, businesses do not prepare for the full amount of their daily, weekly, and monthly expenses, which leaves them bare when payday comes due. Not only should businesses be saving their money to cover all costs, but they should be budgeting for any changes that may come about in cost of rent, broken or out-of-date equipment, unexpected travel, or increased labor, to name a few.
2. Hiring the Wrong Employees
It may be tempting to go with the first or second potential employee who walks in your door, especially if you are trying to grow in the shortest amount of time possible. However, not taking your time with the hiring process would be a huge and costly mistake. Firstly, you will need to take time out of your own or your current employees’ day to train new recruits (which could take months, depending on the industry you are in), so you need to make sure the use of time is worthwhile. And imagine if the employee isn’t qualified, didn’t understand the requirements of the position, or causes problems with the culture of your company. You’ve just spent time and money on someone who turned out to be a dud. Make sure to conduct multiple interviews, speak to references, and do your research on that person before giving the final yes to take him or her on as a new employee.
3. Plan According for Tax Season
In the United States, businesses pay a pretty heavy federal, state, and local tax. If you are not very accurate in estimating the amount of taxes your business is required to pay, you will find yourself with a rather large discrepancy in your budget. Make sure to look over your previous year’s tax records when you plan for the current year’s budget. And remember, it is better to overestimate how much you will owe in taxes and have some extra working capital leftover than to underestimate and find yourself in the red.
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