You’ve picked out a great location and you’re ready to sign the least. Perhaps, like me, you even figured out how you’d like to paint and design your office. I even purchased a bunch of ergonomic furniture. But just when I was ready to move in, I realized I had forgotten a crucial thing: I forgot to budget.
Although I had allotted plenty of money for the bigger items, I completely forgot to account for smaller things, like paper and pens in my budget. So, before I could proceed, I had to stop and rework the numbers. Little oversights can have a big effect. I’m living proof of that. Don’t fall into these four budget traps:
1. Rounding Off the Wrong Way
It’s really easy to underestimate how much something is going to cost. What if something goes wrong? What if you decide you need to replace something before you even use it? Try to make decisions based on realistic facts and figures, rather than estimations. When people estimate, they often overshoot their budget. Better to round up, then run out of money!
2. Looking at Your Projections Through Rose Colored Glasses
You may be looking at your sales projections and assuming you’re going to be a billionaire by the end of the year. That’s not what’s going to happen. Where you want to go, and where you’ll actually wind up, are often two very different places. Every time a competitor appears, your projection should change. If the whole market is hurting, you’re going to hurt as well. Keep researching and adjusting as new information becomes available to be sure you aren’t making big plans for money you won’t have.
3. Thinking You Only Need to Draw Up a Budget Once
The budget you made in January is going to be very different from the budget you’ll need in July. You weren’t a psychic when you drew it up the first time. You could have more or less money than you though you would when you’re halfway through the year. I’m guilty of drawing up a budget and forgetting to update it–are you? Remember that budgeting is a continuous process that needs to be adjusted as finances shift. Failing to meet expectations or exceeding expectations are both vital reasons to update a budget.
4. Using a Budget System You Don’t Understand
You only need to keep track of four core things–what you’ve sold, what you’ve earned, receivable accounts, and payable accounts. Everything else is just another layer of complication on top of something that’s already complicated enough. You shouldn’t have to be a rocket scientist to understand your own budget. If you are finding it hard to read and interpret your budget, it’s time to break things back down to basics.
Maintaining your budget doesn’t have to be a nightmare as long as you’re constantly on top of things. Try to stay realistic, and plan to make small adjustments every few weeks, to help keep your business on the right track.