Aren’t budgets just the *worst*? I mean, they totally take the fun out of money and make you feel like you’re shackled to a boring set of numbers for eternity. Who needs them!
Well….actually…. you do.
A business budget is a tool that can help you manage the cash flow in your business and keep your spending and savings on track. If made correctly, a business budget can even be like a cheerleader, encouraging you to maintain good money management habits in your biz.
There’s more to budgets than just throwing numbers together in a spreadsheet and there are 5 key mistakes people make when making a budget and maintaining it. Here’s the lowdown on what you’re doing wrong with your budget, and how to stop doing it:There’s more to budgets than just throwing numbers together in a spreadsheet.Click To Tweet
Not basing your business budget on actual data
One of the biggest budgeting mistakes is making a business budget based on what you hope you’re going to spend, rather than what you’re actually spending.
This is like when you buy a fabulous pair of heels for that wild Friday night you’ll *eventually* have and they just sit, collecting dust while you watch Netflix in your slippers.
Creating a budget based on what you wish you spent, rather than real data, is a surefire way for your budget to sit lonely and forgotten in the back of the closet. A budget is not a goal setting document, it is a reflection of your actual spending and the limitations you’ve set.
That means it is based on real data and your spending patterns.
How to avoid it: Go back through 3 months of statements and look at EVERY SINGLE thing you spend money on. Group these expenses into categories and take the average of the three months for each category.
Only now, after you have the average of 3 months, should you start tweaking your numbers to fit within your budget. You’ll find that by using historical data as a starting off point, you’re much more likely to come up with a budget that feels realistic.A big mistake is making a budget on what you hope to spend, not on what you're spending. Click To Tweet
Not including annual expenses in your budget
Annual expenses are seriously the number one business budget killer! Often, we completely forget about these expenses until we look at our bank statement and are like WTF?
Annual expense can take a big gulp out of your bank account. Usually, these expenses are the serious ones and it can be painful to pay for them if you aren’t prepared. It can also completely throw off your budget because, suddenly, all that money you have set aside for business meals is eaten up by your annual insurance.
How to avoid it: Create a line in your monthly budget for annual expenses and intentionally keep this money in your account.
To do this, make a list of all your annual expenses and add them up. Remember, annual expenses aren’t just for things like software or your business license- it can also be a time of year when your costs are higher or when you hire extra help.
Divide your total annual expenses by 12 and add that number to your budget. If you don’t trust yourself NOT to spend the money, make a recurring monthly transfer to your savings and replace the money whenever you get hit with annual expenses.
Budgeting the bare minimum
Again, this is where reality comes into play. Often, the numbers in budgets are based on the absolute, bare minimum that we want to spend on a category and they give us NO wiggle room.
What happens? You get so constricted by your budget that you freak out, go on a rebel girl spending spree, and then feel like a loser for not sticking to your budget.
At this point, you feel like such a budget failure that all hope is lost and the budget goes out the window.
How to avoid it: I’ve tots been in this cycle and the way I’ve stopped it is by padding my business budget. Now, this doesn’t mean spending all the money, it just means adding a little bit to each line of my budget so it’s not SO tight.
First, separate your budget categories by fixed expenses (expenses that are the same amount every month) and variable expenses (expenses that change month to month). For every variable expense category, add 10%.
This is your wiggle room money and you are under NO obligation to spend it, but it is there in case you need it or if your rebel girl gets a bit out of hand.
Not comparing your budget to your actual spending
This is what I call living in a budget LaLaLand. You have a budget, you think you’re sticking to your budget, but you don’t actually compare your spending to your budget.
Budgets are living, breathing documents and they need to be tended to in order to survive. You can’t just make one and expect your finances to instantly fall in line with it. In fact, most budgets go through several rounds of revisions and edits before they become truly finalized.
Where do these edits come from? Your actual spending.
How to avoid it: For the first 3 months of your business budget’s life, make it a point to sit down with your actual numbers and compare them to your budget. Where are you overspending? Where are you underspending? Did you forget about any expenses?
Change your budget based on these questions and do the same process again, 1 month later. Repeat this process for the first 3 months of your budget and after that, every quarter.Budgets are living, breathing documents and they need to be tended to in order to survive.Click To Tweet
Forgetting that your budget exists
If you’ve been reading this and thinking to yourself, “Oh yea, I made a business budget once,” then you totally feel me on this mistake. Sometimes we hate budgets so much that we block out that we already have one!
It’s kinda sad to spend a bunch of time making a budget, only to forget about it in the netherlands of your Documents folder. Also, forgetting you have a budget makes it waaaaaaay easier to spend on whatever you want- and that can spiral quickly.
How to avoid it: Put your business budget somewhere that it is visible and easily accessible. This can be on your desktop (where you will see it every day) or even printed out and hung up in your office.
If you want to be able to access your budget anytime, keep your budget in the cloud. If you’re tempted to spend, you can take a quick look and keep yourself in check.