There’s something about the warm weather and blooming flowers after a long, cold winter that makes you want to clean, organize, and finally get rid of that junk you’ve been piling up in the yard and under the bed. It seems that everybody catches spring cleaning fever sometime in late March and early April, giving their house and yard a thorough run-through.
Your house and yard shouldn’t be your only focus, though. What better time than the beginning part of the year to go through your business, look at the books, analyze processes and do your own form of “spring cleaning” there, too? One area you need to go through is your budget, which could make or break your business, especially if you’re making budgeting mistakes that could cost you big time.
Combining personal and business accounts. When you’re running a small business, especially one that you’ve just started, it might seem easier to combine your personal and business accounts and use one account for both. While it might be more convenient, it’s going to cause you problems. If your accounts are combined, you’ll spend business money on personal items, and it will be far too easy to overspend, which could land you in a tough situation.
Racking up credit card debt without guaranteed revenue. Credit cards can be a great tool, but they need to be used carefully. If you use them to pay for equipment, utilities, and other amenities without the guarantee of future revenue, you could end up in a tight spot that is difficult to get out of. If you spend too much, you could end up with high minimum payments, which can take a long time to pay off.
Not putting money into savings. There are a lot of expenses when it comes to running a business. There’s always somewhere that your money could go. That being the case, it can be hard to put money into savings. There are so many other things you could put it towards. However, without an emergency fund you can find yourself in serious trouble for those unplanned situations.
Not factoring in taxes. Nobody likes to pay taxes, but it’s something we’ve all got to do. If you don’t, you could find yourself in serious trouble with the IRS, owing not only the taxes you neglected or forgot to pay but thousands of extra dollars in back taxes, too. As a business owner, there’s nobody there to pull out your taxes from your paycheck automatically, so it’s important to factor them into your budget. You might even want to give yourself a little bit of a buffer in case you end up owing more than you planned so you don’t have to pay any taxes out of your pocket or pull from another part of your budget.
Overestimating sales. Optimism is key to running a business, but so is being realistic. While it’s good to estimate sales and set sales goals that are higher than last month’s, it’s also important to be realistic and estimate accurately. While you might want to bring in $100,000 in sales in one month, that’s probably not going to happen if last month’s sales were between $10,000 and $20,000. That doesn’t mean you won’t be able to make $100,000 a month in the future, but you need to be realistic about your forecasting and planning and work your way up to it.
Not setting a budget at all (or setting one and ignoring it). A budget is key to staying on track. You might have an idea in your mind of how much you can and want to spend, but if you’re not keeping track somewhere, it will be far too easy to overspend or overestimate how much you have available to use. Without a budget, you won’t know where you need to improve, where you need to focus your efforts, or even know if you’re hitting the target.
Managing your cash well is extremely important. It could make all the difference in whether or not your business doesn’t make it, only survives, or thrives. A big part of good money management is regularly taking a look at and evaluating your budget and spending, then making adjustments as necessary.
If you’re looking for any additional guidance or tips on spring cleaning your business finances, don’t hesitate to reach out to our team today.