Setting yourself a personal budget and then sticking to it can be extremely hard, and doing it for a business is a whole other matter. Knowing when to spend and when to save is essential for surviving your first few years in the market. However, a lot of small businesses routinely make the same costly mistakes. Here, we’ve listed three of the most common business budgeting mistakes, and some tips on how to avoid them.
From the day you first start trading, you should be sticking to the structure of a solid business plan. Obviously, you’ve got a head full of ideas, and you can’t wait to see them become a reality. However, it’s a big mistake to dive right into running your business without a detailed, well-thought-out business plan. This should include budgetary goals stretching over the next five years, as well as resources that you’ll fall back on if and when things go wrong, like emergency notification software. Today, you’re surrounded by resources that can help you with the short and long-term goals of your venture. Asking advice from an experienced entrepreneur or loan officer will give you some very valuable pointers for formulating a great business plan.
Pricing Too Low
When a competitor breaks into the market, undercutting everyone else’s prices to tempt new customers in, it can be tempting for other businesses in the niche to slash their prices in order to remain competitive. Competitors like this will often have lower operating costs, which usually impedes the quality they’re able to give their customers. If you shave down your prices in order to compete in this area, you’ll either have to operate on a loss, or reduce the value of whatever it is you’re selling. Either of these moves can be enough to bring a promising business to its knees. If you’re ever tempted to slash prices in order to stay competitive, it’s almost always better to emphasize the superior value of your product or service in your marketing materials rather than causing a financial sinkhole in your cashflow. Let your customers know exactly what they’ll be gaining if they choose you over a competitor. The enthusiasm in this kind of marketing can be highly contagious!
Spending Too Much
One of the essential staples to growing a small business is increasing capital. It’s essential to keep your operating costs as low as they can possibly get in those early stages, and therefore avoid any kind of obstacles that can get between you and your goals. A lot of small business owners will choose to give themselves a very low salary for the first few years, and pump every dollar possible into the business itself. This may not always be practical depending on your personal circumstances, but the principle is something that’s very important to keep in mind. Avoid any kind of luxurious or otherwise frivolous spending until your profit margins have stabilized, and you know that you’ve done enough to mitigate the potential risks facing your business.