Budgeting shows you where your company’s money is coming in and going out, which helps you make more effective business decisions. Therefore, it’s important you properly estimate your revenue and expenses, so you avoid an income deficit and/or spending surplus. Here are four common budgeting mistakes to avoid, so your business continues prospering.
Overestimating Revenue
Ensure you review your past sales patterns, conduct market research in sales trends for your industry, and changes in your competition before estimating your future revenue. Go back to data from your previous two years and use the information for realistically forecasting your upcoming fiscal year. Ensure you take into account changes in your product or service lines and other market conditions that may affect your annual profits. You won’t be impressing your investors or anyone else if your actual revenue ends up being substantially below your estimated revenue.
Underestimating Expenses
Be sure you track upcoming expenses and allow for potential changes in the costs of rent, office equipment, utilities, advertising, and other charges. For example, you may be hiring additional employees in the upcoming year, upgrading your computers or other technology, or sending staff to conferences. You’ll also need to account for inflation. For example, shipping fees may increase, as may costs for employee benefits. To cut your expenses when possible, you should look into outsourcing some of your HR, payroll, and other back-office functions.
Not Accounting for Cash Flow
Signing sales contracts is important, but when payment isn’t received before your bills are due, you’re going to have a problem. Because you may end up paying for goods and services before your clients purchase them, you’re going to need funds on reserve at all times. This is especially essential if you have clients who settle their accounts late. You’ll also need funds available for covering unexpected expenses. It’s important you pay your bills on time and avoid additional fees for late payments or overdrawn bank accounts.
Not Figuring in Taxes
You need to use post-tax earnings when creating your budget, so you have a more accurate estimate of how much money you may have to work with over the next year. Federal, state, and local taxes take a substantial amount of your revenue, so you need to plan accordingly. Check your previous year’s return for your tax rate, and figure in all types of taxes you’ll owe when determining your net profits.
Avoid making these mistakes when planning your company’s budgets. For further help with outsourcing payrolling functions, contact the experts at Innovative Employee Solutions today!
