Many people are inclined to go into business because they are in charge of their money. However, it’s a double-edged sword. With a regular 9-5 job, you still get your income every month as long as you do your job, but there’s no guarantee of what your monthly earnings look like as an entrepreneur. When you make budgeting mistakes, there are many consequences for your finances.
Handling financial records is challenging, especially when it’s you’re first time. There are many decisions to weigh in on, from organizing reports to calling the shots to filing taxes. There’s much room for error, and it’s hard to press the reset button.
An unorganized budget can lead to cash loss because the brand makes financial choices that puts it in a deficit. It’s hard to build that capital back up again, even more so if your firm is the only source of income you have.
The worst impact budgeting mistakes can do is to shut down a company. Skynova notes 47% of startups failed because of a lack of financing and investors, while 44% ran out of cash. Good budget management could have prevented both scenarios.
Budgeting mistakes are entirely avoidable if you are more self-aware and detail-oriented. Here are the top errors you need to pay attention to.
Risks are one of the most riveting aspects of entrepreneurship. Granted, most people may either invest too much or too little of their budget in the wrong thing. It’s important to practice risk assessments to ensure you are making some big leaps with the money you have.
Know you also need to take passive chances. It’s a great risk to walk away from opportunities that seem to make sense and have no consequences. As an entrepreneur, you need to listen to your gut and stick to the consequences.
Another common mistake is to avoid goal-setting when creating a budget. As an enterprise grows, its budget will either increase, decrease or stay stagnant. You need to create objectives that lead to expansion.
Goal-setting is also a key tool to set yourself up for success. When an entrepreneur has a vision they’re working toward, they become even more motivated. They also become more careful of how they spend their budget in hopes of meeting their desired outcomes.
There are very few things an entrepreneur loves more than a good deal. Unfortunately, some people make impulse buys because of a significant discount on the product or shipping. However, these purchases can reduce the budget and not provide value.
For example, you were advertised a software program on stock management. You get it right away because it seemed to have a low price. However, you later realize it doesn’t have the features you’re specifically looking for, and there are even cheaper and better alternatives available.
Entrepreneurs are so fixated with growing their business that they tend to pour all their budget into it. However, you are more than just your startup. Learn to invest in your well-being as well.
For example, set aside a part of your budget for courses on skills related to your industry. Have an allowance for attending networking events. You can connect with other entrepreneurs and learn about their experiences with budgeting blunders.
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Most mistakes can stem from hearsay about how to manage money. Demystifying these budgeting myths is key, especially for entrepreneurs newer to the scene.
Gross pay is different from net pay. The former is the total amount of money you get before deductions, which you can find by dividing the annual salary by the number of months each year. Meanwhile, the net pay is the money you receive after certain deductions.
A company doesn’t exempt you from making taxes and insurance premiums. If anything, there’s more to pay attention to. It also grows over time, when the organization starts to grow and you hire extra employees to help out.
Entrepreneurship is largely based on independence, which can explain the desire to handle management on your own. However, getting professional assistance is OK. An accountant is a strong asset for better budget management.
For one, accountants can keep your records and organize your finances. Because of their expertise, you can seek suggestions on where to cut costs for better financial health. They can also organize your taxes, credit score and exemptions when applicable.
Some entrepreneurs may be recommended to put some — if not all — of their funds into marketing. Unfortunately, it is a budgeting myth that can cost you a lot. As powerful as promotion is, you shouldn’t overspend.
There are also more affordable marketing tactics available. For instance, you can invest in pay-per-click advertising instead. It allows you to pay up only when an ad is clicked, so you’re only settling the cost for potential conversions.
Many people think budgeting techniques should be followed to a tee. However, keep in mind that entrepreneurship is all about going against the grain. Try to assess whether a method is really suitable for your plans.
For example, the 50-30-20 rule is popular. The gist is that half of your income should go toward needs, while 30% goes to wants and the rest goes to savings. This division is not quite realistic anymore, which makes sense. It was popularized in U.S. Sen. Elizabeth Warren’s “All Your Worth: The Ultimate Lifetime Money Plan,” which came out in 2005.
The economy and priorities have shifted in the last 19 years. Assess your goals and make a couple of changes. For instance, you can increase your needs budget for a higher business fund or put some savings toward stocks.
There’s plenty of room for budgeting mistakes in the corporate world. If you’ve made some of the missteps above, know you can shift gears to avoid them in the future. Work toward a sound financial plan that works for your entrepreneurial endeavors.
Alex Quin is a full-stack marketing expert and global keynote speaker. Founder and Chief Marketing Officer of UADV Marketing - a member of the Forbes Agency Council.
