Starting a business invariably involves accurate budgets to help balance financial accounts and create business goals. All too often though, I come across new business owners who have given no consideration to their financial strategies.
Below are the most common startup budgeting mistakes and how you can avoid them.
Mistake 1: Having no budget at all
I cannot stress the importance of discussing finances with a qualified professional when it comes to starting a business.
In order to make your startup successful you need to be able to accurately estimate how much money you will need, and how you will allocate the funds. If you’re already failing to plan you’re already planning to fail.
Mistake 2: Not budgeting funds for marketing
Not engaging in marketing essentially means fewer or no clients at all. Business owners have explained the wonders of the digital era and how they can market their businesses on social media – for free.
Social media is not ‘free’ though. Having a Facebook, Twitter or LinkedIn page and posting on it every so often does not constitute effective social marketing. Social Marketing takes up time and if you’re not connecting with your potential clients and customers on an emotional level, it can be a complete waste of time.
Obviously cash flow is extremely tight, when allocating a figure for your marketing budget, aim for five percent of the projected annual revenue.
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Mistake 3: Miscalculating the break-even point
Business Owners sometimes do not distinguish between fixed costs such as rent and utilities, and variable costs such as materials and wages. This leads to incorrectly assuming all costs will remain steady as sales grow which, in theory, results in the profit margin widening much faster than is the case.
Using an Excel worksheet to sort out which costs are fixed and which are variable will help to accurately calculate the break-even point.
Mistake 4: Underestimating startup costs
Many business owners are often shocked when they discover just how much startup costs can amount to. Some costs are underestimated whilst others are completely forgotten. That’s why it’s imperative you seek advice from a professional who will make you aware of certain expenses or legal requirements.
As you adjust to your budget each month, and ideally continue to save money, you’ll be able to start investing in bigger and better things.
The first couple of years in business can be extremely tough, but with the right tools, advice and various business related strategies you can move your business in the right direction.
What are your thoughts on common start up budgeting mistakes?