Budgeting may not always come naturally. You might have a brilliant business mind, but if you can't keep a budget, your business could be in trouble.
There's a lot involved in keeping a budget, which is why you could be making budgeting mistakes right now and not even know it.
Here are three common business mistakes you might be making, and tips to avoid them.
1. Hiring the Wrong Employees
You might not expect hiring decisions to cause budget problems, but they can. When it comes time to hire an employee, some small business owners don't do their homework, check references or investigate specific skills needed for the job.
The results can be costly. The average cost of a bad hire is $15,000. That means a hire that goes wrong can become a budget blunder, costing you thousands of dollars that aren't accounted for.
Solution: Be picky when hiring.
When you're ready to hire an employee, conduct several interviews, talk with previous employers, consider requiring a skills test for niche positions and research the candidate on social media before making a decision. Don’t rush your decision for an immediate need. Do everything in your power to make sure the candidate you hire is the right one.
2. Setting Unrealistic Sales Goals
Setting goals is productive, unless you're setting unrealistic goals. That's sometimes the case when small business owners set annual sales goals. If you are expecting higher revenue than what you can realistically deliver, your budget forecasting will be negatively impacted.
Setting an aggressive goal can be a good challenge, but missing the goal can have adverse effects. You might start to feel defeated, or like your business isn't performing well, all because of a sales goal that was never realistic in the first place.
Solution: Do your homework before setting a goal.
Before setting any goals, take time to consult previous sales records, consider upcoming market changes and factor in variables like a shrinking sales team or a product change. Use data to influence your sales goal so the number you set is obtainable.
3. Not Saving Monthly for Taxes
It would be amazing to keep every dollar you earn, but it just doesn't work that way. Small business owners know they have to pay taxes, but when it comes time to pay, many fall short.
Business owners plan to save, but their efforts are often derailed. Maybe you planned to put away a large chunk of cash from a new client, but the deal fell through. Or maybe you made more money this year than expected, and owe the government more than anticipated.
Solution: Starting today, make a plan to put aside tax money.
Talk with a tax accountant who can estimate how much you'll owe in taxes. You'll likely have income, sales and employer taxes due throughout the year. Due dates, amounts and where the money is sent will vary.
To plan ahead, get an estimate of your tax obligation and start setting money aside monthly. Put the money in a separate savings account to make sure you don't invest it back into the business.