Entrepreneurs often learn as they go along. After all, there are certain aspects of running a business you can only understand if you have first-hand experience. But when it comes to creating and managing a budget, if you’re not prepared, it can end up being extremely detrimental to your businesses.
“Budgeting is one of the hardest things you can do in a startup, because it is impossible to plan,” said Tiffany Willson, CEO at RoomHints, a startup based out of WeWork’s Fulton Center space that provides expert opinions on interior design. “You can make fancy models and projections, but rarely do those ever go as planned. A startup is all about timing, and it is tough to time everything right.”
Let’s take a look of some of the budgeting mistakes that entrepreneurs often make when starting their own businesses, as well as the solutions that could have prevented them.
Not having a budget in the first place
The mistake: Shelley Mitchell, a business coach based out of Florida, says she learned the importance of budgets when she used to work for multimillion dollar companies.
“They all had budgets,” she said. “When I started working with solo entrepreneurs, like attorneys, bloggers, healers, and even doctors, 99 percent of them who were already in business or just starting out didn’t have any revenue projections or budgets. They had nothing. Then they would wonder why they weren’t making money.”
The solution: Have a budget, as well as a business plan in place when you launch your business. You also need to know your goals and plan accordingly.
“Solo entrepreneurs need to be very clear on where they want to go,” says Mitchell. “What I tell my clients is we often get in our car when we want to go somewhere. We put it into our phone and the GPS takes us there. Imagine that your business is your car, and you just start driving without knowing where you’re going. I make them come up with an ‘address,’ and determine where they want to go.”
Nancy Clauss, principal consultant at Cayenne Consulting, agrees, saying budgets and business plans help you steer your new company.
“A great business plan is the best thing that you can do for your startup,” she says. “The right plan helps business owners identify their weaknesses and allocate startup funds wisely, greatly increasing the odds of a successful launch.”
Not budgeting enough for your product
The mistake: Willson said that as soon as RoomHints went live, she discovered that her product wasn’t actually ready to be utilized.
“Our budgeting mistake was not spending enough time and money on our product,” she says. “We launched quick because we were unsure people would even want our product, so we wanted to test it quick, but this cost us as we had to turn away a lot of designers from signing up due to inefficiencies with our product.”
The solution: Take your time to launch, and don’t do it prematurely. Hold a beta period and invite friends and family so that you can work out any problems with your product. First impressions are extremely important, and bad ones can cost you customers.
Not planning for every expense
The mistake: “Entrepreneurs typically make mistakes when it comes to estimating how much of their time their new business will consume, how much they can pay themselves, how much money they will need to grow, and how much they can realistically do just by themselves,” said Clauss.
The solution: Aside from reaching out to a business coach who can project what your expenses will be, you need to get as much first-hand experience as possible before launching your business, or reach out to others who have it.
Des Cahill, CMO of Samepage, a platform that organizes collaborative projects, says business owners should try to learn from their peers.
“If there is a marketing budget mistake to be made, someone in your LinkedIn network has probably already made it,” he said. “Why not profit from their experience and insight?”
Be ready for anything and everything
Ari Gardiner, cofounder of PureWrist, a company that produces a contactless payment bracelet by the same name, said that you should add a little extra to your projected budget, just in case.
“Always budget for more than you think,” Gardiner says. “Unforeseen expenses always surface throughout business and you are better off safe than sorry.”
What might these unforeseen costs include?
“Underestimating legal and accounting fees, regulatory issues, and capital needed for second stage growth,” said Clauss. “Marketing costs are essential and often under-allocated and essential for growth.”
If you started your business without a budget, or you haven’t come up with one yet and you’re set to launch soon, there’s still time to recover.
“No one is perfect,” says Gardiner. “It’s a matter of how you come back from a mistake during tough times that will ultimately define you.”
Photo credit: Startup Mena