Every business needs a budget. It’s an essential part of a business plan that prevents your funds from running dry or eating into your profits. 

But all too often, business budgets fail, leaving business owners in difficult positions. To help prevent your business budget from doing the same, let’s take a look at some of the most common reasons that business budgets fail:

  • The budget is unrealistic
  • The budget is done once a year
  • Unexpected costs
  • The entire budget is used too quickly
  • Expenses are missing from the budget
  • The budget isn’t taken seriously

The budget is unrealistic

No matter how hard you try, a budget will always be theoretical. Circumstances will change, and costs will be different as time goes on. 

The only real way to counteract this is to regularly check your budget and see how much you’re spending compared to your predictions. Then, when you know the reality, you can adjust your budget to be more realistic. 

If you have employees and different departments, getting them involved with budget planning is a great idea. First of all, it’ll let them know your resources’ limits and make them feel more responsible for taking care of them. But more importantly, as experts in their fields, they’ll know better than anyone the actual costs of certain items. 

The budget is done once a year

Following on from the last point, regular budget review and updates are essential. Unfortunately, the old model of an annual budget just doesn’t seem applicable anymore, especially with global pandemics making supply chains and business regulations wildly unpredictable.

The best solution is accurate spending records and regular budget reviews. For example, reviews could be done every month, and actual changes could be made every 3 months to prepare for the next financial quarter. 

For the best possible records or your income and expenses, try using accounting software. It can automatically track all your transactions and give you long term projections based on your spending. 

Unexpected costs

This one is particularly true for new businesses that might underestimate the actual costs of certain expenses or encounter hidden costs that they weren’t made aware of. 

For example, you might budget £20 per month for a CMS (Content Management System) subscription only to find out that you are charged extra for transaction fees. 

The best way to avoid this is to get advice from as many people as possible. Speak to other business owners in your industry, compare service providers, and ask them if your budget seems realistic to them, where they were caught off guard by hidden costs, and if they could recommend cheaper alternatives. 

Spending too much too fast

This is another problem with yearly budgets. Or, more specifically, allocating that entire budget at the start of the year. The danger here is that you can use a large portion of the budget without seeing the results of that spending, meaning it could all be for nothing. 

Burning through a budget can be fairly easy when it looks like an endless pot, so space out the budget into months instead. If a department does need a larger share for a particular expense, have them make a request and ask for their reasoning. 

Missing items from your budget

A budget only really works if it’s used properly. Problems can arise when business accounts are used for extra expenses that were never planned for. This might include extra costs like the ones we mentioned earlier, or worse, personal expenses. 

If you do end up paying extra costs, sometimes it’s unavoidable, then adjust your budget as soon as possible to see how it affects your future projections. Most of the time, these are small costs that you might not have considered before, but they all add up. 

When it comes to making personal expenses with your business count, just don’t. It’s a slippery slope that will make things much more confusing later on. If, for some reason, you have to use your budget for a personal expense, make sure you repay the amount so there’s no missing money. 

An easy solution is to open an entirely separate business account for your business. This will reduce the temptation to use business accounts for personal expenses, and vice versa, and instantly account for any extra costs, no matter how small. 

Not taking the budget seriously

A budget shouldn’t be treated as a rough estimate or best case scenario. Instead, it should be treated as part of your business’ roadmap to success. It can be a powerful resource, so if you really take the time to write an accurate budget, you’d be foolish to ignore it. 

It’s tempting to ignore slight discrepancies or inefficient spending, but it makes a huge difference over time. Most of us don’t enjoy reviewing our budget because, frankly, it’s a stressful concept. The idea of losing money, personally or in business, can lead to panic. 

But it’s always the case that the best way to improve a stressful situation is to face it head on. Take responsibility for your budget, make the changes you need to, and soon you’ll feel like it’s actually helping you rather than working against you. 

Control your budget with a simple app

Financial management can be stressful and time-consuming when you’re self-employed. That’s why thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.

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