I constantly hear people say that they keep going over budget. They are frustrated and discouraged because they put so much into create and implementing a budget, all to find themselves constantly overspending.
Usually when this happens, I find that the same reason exists regardless of the person or company.
1. Underestimating costs. This is one of the biggest mistakes businesses make. When you start creating your budget, I always suggest starting with the current years actuals to date plus a forecast for the months that haven’t occurred yet. This way you include true expenses and not estimated costs. If you start with the current year’s budget you may have to make more adjustments for the things that did not occur and the extra things that did. Plus adjust for inflation. If you start with where the current year expenses are so far, all of that is already baked in.
2. Failing to forecast. As the year progresses, things change. Costs are higher than expected and there can be project delays; or better yet new projects which means additional income. All of these things need to be accounted for regularly and then the budget adjusted for the remaining months in the year. If a cost comes in higher than expected and you forecast that forward, the end result will be constant overspending.
3. No sales strategy. Creating a sales strategy is a key component to bringing in revenue every month. You not only need to know how much sales you need per month, but you also need to know how many customers it will take to get there (new and current) and where you are going to find these new sales. If you need 5 new clients every month, where are you going to find them and how are you going to get them to sign up.
What areas of you budgeting process do you struggle with? What are your biggest budgeting challenges?
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