As we head into the 4th quarter, you are super focused on ending the year with a bang, right? It is also the best time to start thinking about your plans for the upcoming year. Take a look at your current year to date actual figures and answer these questions:
- How have you done so far compared to your goal? How well did I budget or was I way off track?
- What expenses sprung up? Could they have been avoided or should I have planned for them?
- How can I better plan for next year?
These are just a few of the questions you need to be asking yourself as you start planning your budget for next year. Yes next year! You need to start preparing your budget NOW! This will help you prevent the mistakes that you have been making all year.
Here are 5 of those mistakes to help you get started.
1. Not having a budget.
Having a budget is very necessary when you own and operate a business. It’s not enough to have a goal; you have to have a formal plan on how you are going to reach that goal. See a budget is designed to give you a clear cut plan to follow to reach an intended target. Without it you are operating your business blindly. Trying to hit a target that you can’t even see. Have you ever tried to shoot a dart at a bulls eye? Very hard to do right. Well operating a business without a budget is like trying to hit that same bulls eye in the dark. Impossible to hit that target…unless you can see in the dark.
2. Not tracking against your actuals.
Once you have a budget you must compare how you are performing to that budget regularly. Minimally once per quarter. If you don’t do this critical step then you have no idea how good or bad you are doing as compared to that plan. Comparing your budget to your actuals helps you understand what is really going on in your business. It also helps you see how your business is trending year over year as well as compared to your industry competitors.
3. Not following your budget.
Once you create your budget you MUST FOLLOW IT. Say it with me I WILL FOLLOW MY BUDGET. There is nothing worse than creating a budget and not following it. Why create a plan and then place it in a drawer and never look it again? That is the equivalent of not having a budget at all. Would you climb a mountain without a guide? No. Would you buy a house without determining a budget around how much house you can afford and the taxes and the insurance and the utilities. No. So why would you operate your business without a plan? Following your budget allows you to see how you’re doing in your business and it helps you better manage your cash flow. You will be able to see where money is not coming from and where it is going so that you can make any changes as necessary.
4. Not budgeting seasonally.
The key to a good budget is to budget accurately. Realistically. When you create a budget for your business you need to start with a baseline equivalent to how your business did in the previous year. These are hard value numbers that represent the profitability of your business. Without over-budgeting. You also need to factor in seasonality. Placing revenue and costs in the appropriate months you expect them to occur. And I am not talking about seasonality just around holidays, unless that applies to your business. Seasonality based on your industry. For example, tax preparers have to budget higher in January through April for tax season as well as in September and October for extensions. Landscapers have to budget more from March through September than during the winter months. Moving companies budgets are higher during the summer that during the rest of the year. Factor in seasonality of your business to ensure that your expenses are covered during the off months.
5. Not budgeting enough.
Lastly, be sure not to under-budget. Don’t underestimate costs that can change the entire trajectory of your business. You have to be certain to factor in the unexpected. Factor in cost inflation and how you can still manage your expenses without any strain. Create a savings plan within your budget. Yes a savings plan. Businesses have savings accounts too.
What budgeting mistakes have you made in your business in the past? What were your learning moments from those mistakes?
To learn more about how to create, build or maintain a financially thriving business, contact Sherrell at info@Empower2Thrive.com to schedule your Business Assessment session.
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