Top 5 Reasons Why Your Business Budget Is Failing

In order to run a successful business, you need to make more money than you spend. Sure, in the first several months this won’t be a possibility and until you reach the break-even point, this will be quite difficult. Nonetheless, even past these two points, some people struggle with balancing out their income and their outcomes. Why? Well, mostly because they struggle with the concept of budgeting.

In other words, it’s not about how much money you make; it’s about how you spend it that counts. Now, in order to spend your money efficiently, you need to have a spending plan and this is what budgeting allows you to do. However, there are some people who don’t know how to make a proper budget, as well as those who do it poorly. It’s highly questionable which of these two groups has it worse. Not being able to do it leaves you in the dark, while doing it improperly gives you a false idea about your financial capacities. In order to avoid the latter scenario, here are the top five reasons why your business budget might be failing.

1.  You do it once per year

The number one reason why your budget may be failing is the fact that you do it only once per year. Sure, doing budget takes a lot of time and energy, however, it’s not as if you have something that’s of the higher priority than it. Keep in mind that your budget determines the financial health of your enterprise, which is why managing it needs to become a recurring thing.

Why is this so important? Well, first of all, you need to understand the fact that the trends evolve. Your previous investment might have changed by 180 degrees over the course of several months. Moreover, your spending might have gone out of control, you may have become more reckless with how you deal with your finances and there are other, harder to foresee elements. Let’s say that someone with access to your finances (someone in your business or household) is secretly stealing from you. The only way to determine this would be to do a budget (well, the only way other than experiencing a shortage of cash). If you do it once per year, chances are that you won’t notice until it’s too late.

At very least, you need to review your budget every four paychecks, however, it would be far more effective if you could do so every month. Keep in mind that with present-day budgeting apps, you can get immediate insight into the state of affairs. Moreover, the image that you get is dynamic and ever-shifting, which means that at any given moment, you can get an accurate representation of your budget. This concept alone is more than worth your time (even money).

2.  It’s not realistic

Whether or not something lives up to your expectations doesn’t necessarily depend on its performance. It depends on your expectations. Therefore, you need to keep in mind the fact that your budget needs to be realistic. So, start by properly assessing your incomes and your needs. Keep in mind that while, in theory, you could lead a life of complete austerity, this will most likely not be the case. So, planning to give up on every single unnecessary luxury might just be a plan that’s doomed for failure.

Also, you need to consider the fact that your business might sometimes deviate from the path that you’ve set it on. Things don’t always work out as it should and not all the emergencies can be covered by your emergency fund (provided that you have one, to begin with). Instead, you need to leave some room in your budget for the unexpected, even for the unnecessary. You see, a budget is all about having an insight, not about lying to yourself that things are better than they are or convincing yourself that you have more options than you really have.

3. Your saving methods are ineffective

Now, we come to the most controversial issue of them all, finding an effective way to save money. Let’s say that you run a small business and that you need to find a way to create a surplus in your budget by reducing the overhead. Of course, there are some expenses that are, more or less, the same regardless of what you do. Other than threatening to leave, there’s not much you can do in order to reduce the cost of the rent and even this might not give you the desired effect. However, there are some expenses that you can have an effect on. Still, this is a slippery slope and you need to tread carefully.

There are so many wrong ways to do this; ways that could horribly backfire in no time. For instance, you could try reducing salaries, however, what will you do once your team members start leaving. You could try saving money on supplies by making smaller orders or by ordering a lower quality of raw materials. This, on the other hand, will A) increase the risk of downtime due to the lack of material and B) diminish the end-quality of the product in question. Both of these issues will cause more trouble than they’re worth.

This is why you need to learn how to cut corners without shooting yourself in the leg. For instance, when furnishing your office, instead of hiring fewer workstations, thus limiting your manpower potential, you can instead look for commercial fitouts specialists in order to improve the cost-efficiency of the project. In other words, you need to look for professional help, seeing as how this provides you with greater safety when it comes to saving money. A professional can help you figure out the situation in which being frugal is safe.

4. Lack of analysis

Planning is the cornerstone of every great budgeting effort, however, you can only get so far in theory. One of the most important things that you have to focus on is the analysis of your financial processes in retrospective. Sure, what’s done is done and there are some financial decisions that you can’t change but in the majority of these situations, the majority of expenses are recurring. This means that by figuring out an unnecessary expense or by finding a better way to handle your money, you’ll prevent yourself from repeating the same mistake in the future.

Keep in mind, however, that how you spend money isn’t the only thing you can analyze this way. For instance, your power bill might fluctuate over the course of the year. During the summer, for instance, extreme heats will require you to spend far more money on your power bill, due to the fact that the AC unit will be turned on during the most of the day. So, by making a diagram of the fluctuations of your monthly utility payments, you can come to make a far more accurate budget for the following year.

5. Not planning for an emergency

Previously, we’ve talked about saving money, predictions and analysis but there’s something that you just can’t anticipate. A medical emergency could take place at any time and even though you believe that you’re doing just fine, you may end up on the job market in a matter of weeks and months. These are the emergencies that you just have to be ready for. You need to develop a contingency plan. Now, before we carry on, you need to understand that planning for an emergency isn’t the same thing as expecting that something bad will happen. It’s better to have a contingency plan and not need it, than not to have it once you need it.

The first thing you need here is an emergency fund. In general, the rule is that this fund needs to have at least three months’ worth of your living expenses. For instance, if you need $2,000 make it through the month, your emergency fund should be about $6,000. Of course, you can go as high as nine months. Keep in mind that while setting this money aside is hard, it’s more than necessary and you should try to make it easier by gamifying the experience or developing a saving plan.

Another thing you want to do is improve your credit score so that you can increase your chances of getting a favorable unsecured personal loan. The simplest way to boost your credit score is by using your credit card more responsibly, however, there are some other methods that you should consider as well. Before you start, nonetheless, check your FICO score and set your score goal. Then, work your way toward achieving this. Just keep in mind that even if you don’t need a loan right now, having this option is always a good thing.

In conclusion

In the end, these aren’t the only reasons why your budget might be failing. Not getting business insurance, allowing the process of budgeting itself to drain more resources than necessary and more could be culprits just as easily. Still, it goes without saying that the above-listed five are the most troublesome and that by handling them properly, you’ll be in a much better position.