Perils Of A Bad Budget Strategy For You Small Business

Monday, August 21, 2017, 6:00 AM | Leave Comment

By looking at the past few years, you’d think it’s safe to say that this is the ideal time for starting a small business.

But while it may be so, it’s also a fact that there are nine startups that fail on every one that makes to break through and make a profit. There are many reasons for this, but the biggest one is that most small businesses aren’t efficient in their budgeting.

Having an effective budget strategy means responding to high costs and finding ways to maximize profits among other things.

This guide will try to take you through some of the mistakes you’ll want to avoid when creating your own budget strategy.

  • Ineffective Pricing

    Most businesses struggle with determining the prices so that your products turn out to be profitable.

    If you’re unaware of your operating and overhead costs, you won’t be able to set optimal prices. What you should be able to do, with projected sales in mind, is to determine what your total cost will be per unit sold, and then add the profit that you’re looking to make on top of it.

    And while you may be thinking that raising prices will negatively affect your sales, you might be in for a surprise.

  • Being Unrealistic About Your Sales Projections

    Rather than conducting thorough market research and reviewing past sales trends small businesses usually just pick the random figure for their future sales. And that’s not where it ends because they also usually show that their sales will increase exponentially over time, without having anything to back that up.

    The most common reason for this is they’re trying to impress potential investors, but what they don’t realize is that when these predictions don’t come true – they’ll have no idea where they’re at financially and their prices won’t be optimally set.

  • Bad Cash Flow

    One of the most important metrics to watch out for in any budget is cash flow. If you don’t create your budget in such a way that you always know when you’ll have bills due and when your revenues will arrive, you might find yourself with little to no cash available to pay your bills.

    If you’re paying for goods long before your customers purchase them, there’ll be a gap between that you need to plan for how to deal with it.

    Having a good understanding of cash flow can help you with that because it doesn’t matter how many sales you’re making with no payments coming through.

  • Bad Debt

    Having bad debtors is a standard thing today, but having too many of them is a thing you’ll want to avoid at all costs.

    The best cure when it comes to bad debt is prevention, which you’ll achieve by asking for the money in advance.

    The problem is that bad debtors can affect your finances so much that you find yourself near bankruptcy. If such a thing happens, you might want to consult with a reputable DW Corporate Insolvency Firm in Sydney and check your options.

  • Ignoring Taxes

    One of the most common mistakes small business owners tend to make is that they calculate their pretax earnings. That gives a false sense of your finances, as what really counts is what you’ve got left after you’ve paid the local, state and federal taxes.

    Do some research to determine your tax rate and be sure you’ve paid everything in time. Only then you’ll be able to have a realistic insight into your earnings and the overall success of your business.

  • Ignoring Your Own Budget

    This one’s obvious, but it’s also a mistake that many business owners tend to make. A budget isn’t something you can do once a year and be done with it. It’s an ever changing document, one that you need to constantly check up on, comparing it to the real numbers you have and assessing how accurate it actually is.

    If you’re not improving your budget making process over time, you’re likely not going to get far with your business. Always adjust your budget to mirror reality as much as possible, and you’ll be set up for success.

    Reviewing your budget at least once a month can also help you save some money because you’ll notice in time where you’re spending more than expected – and act before it’s too late.

Conclusion
Having a good budget is extremely important for any business today, and yours is no exception. If you don’t invest some time and effort in it, it won’t serve the intended purpose and it might even trick you into thinking you’re doing better than you actually are.

Running a small business today is no easy task with many competitors fighting over the same spot, and you should always try to stay one step ahead of them.

By avoiding these budget mistakes we highlighted in our guide, you’ll be set up for success.

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