10 Common Budgeting Mistakes
Kathleen Benham, founder of Benham Conway & Co Chartered Accountants highlights things to avoid when creating and managing budgets.
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Kathleen Benham, founder of Benham Conway & Co Chartered Accountants highlights things to avoid when creating and managing budgets.
A robust business plan should be in place the day a business first starts to trade. Many business owners who are keen to get started begin without having a solid, detailed business plan.
Once the business plan is in place, it is important to continue to review the plan regularly.
In virtually every transaction, there is a lag time between the fee/sale and the cash collection. This is a fact of business and should not be a problem, assuming you are prepared.
Unexpected events happen. No matter how well a business plans, it must always create a contingency budget to allow for the unexpected such as illness and acts of God.
End-of-the-day balances can often appear larger than they really are. Taxes may sit in your account temporarily but will ultimately be owed to the government.
When a competitor undercuts everyone’s prices to land a job, it is tempting for other organisations to reduce their prices to compete. The competitor may have a lower operating cost, often at the cost of quality. If you reduce your prices to compete, you will either have to operate at a loss, or reduce the value of the product or service you are providing to avoid making a loss and losing money.
Part of growing a business is increasing capital. It is important to keep operating expenses as low as possible in those early days to survive the inevitable obstacles that will occasionally come your way. Some business owners choose to accept very little salary in the first couple of years, however, ultimately owners must be able to earn a living.
All too often businesses are tempted to take on large contracts with insufficient resources to deliver. Inevitably, cash flow problems arise.
Advertising leads to sales. However, many budgets show advertising costs as a percentage of sales in the same period. To be truly effective, an advertising/marketing campaign will have to be initiated before sales can be expected.
Life gets busy for business owners. It is easy to let keeping track of expenses and raising invoices fall through the cracks.