Budgeting Errors: Dont Make Your Business a Cost Cause

By: Akhil Shahani

So many great ideas bite the dust when they metamorphose into the hard reality of brick and mortar. And often, it's not because the ideas were flawed in any way, but were likely let down at the execution stage. There's a huge gap between making a business and making a business work, and prudential financial management is one of the most important constituents of that difference. How does one go about it? With a well crafted budget, of course, made easier by tools like the Ultimate Financial Forecaster 2.0 from Atlas Business Solutions .

It takes money to make money, and a penny saved is a penny earned. Get it? Apparently most people don't, judging by the frequency and enormity of budgeting errors that are made in companies each year. Here's our little ready reckoner to help you avoid making some of your own.

Over the top projections. This is numero uno among all budgeting errors, beyond doubt. In a bid to wow investors, entrepreneurs and promoters will sell them the moon, the stars and everything in between. No wonder venture capital firms such as Commonwealth Capital Advisors insist on seeing a lot more solid documentation besides a business plan, before they part with their money. If you were just about to dress up your budget, take a moment. Remember, you are answerable to your investors as long as their money is locked in your company - presenting a killer revenue plan may get you the funding, but you'll be left behind to steady the ship through choppy waters when the actual performance falls short. Present a realistic but optimistic picture, and go all out to overachieve, instead. The money will begin to pour in by itself.

Understated costs. Forgot about including travel costs in your preliminary budget? Or didn't check the state of raw material prices carefully enough? Plugging in a lower cost estimate to project a sexy bottomline ranks right up there in the budgeting errors honors list. Our advice ? Do exactly the opposite, work with a higher number. There will always, but always, be hidden costs, unanticipated contingencies and so on. Pretending they don't exist won't make them go away.

Mismatched cash flow. You're selling like crazy, customers are delirious with happiness, there's no money in the bank! Chances are that you're paying for supplies much faster than customers are paying you. While making a budget, factor in not only "value" but "timing" as well. Help your case by stretching the terms of credit that you get from suppliers and crashing those you offer to customers. Also, watch out for times when you have to make large one time payouts - taxes, and levies for example.

Forgetting Uncle Sam. Overlooking the taxes that need to be paid is a common budgeting error, one you'll only live to regret. Do a due diligence on this one - and make sure your budget comprehensively covers all taxes, levies, duties, royalties and so on.

Mismanaged finances. Well, strictly speaking, this must not count among budgeting errors, but what the heck! Say you've made a watertight budget, taken care of all the contingencies.... but don't have the fiscal discipline to stay within it. We're not even talking deliberate, pernicious intent here. Very often, expenses just go out of control, and profitability out the window, and no one really knows why. A good way to prevent this is to conduct periodic reviews of actual expenses versus those budgeted. Looking at a budget once a year when the financial plan is being drawn up, must surely rank as the worst among all budgeting errors!

Money Management
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