We’ve all been there: after you’ve gone through all the time and effort to make a good, solid budget for your business, suddenly one month you find it’s wildly out of sync with your actual numbers. Maybe your sales projections failed to take into account some new development, or you forgot to budget for the planned hiring of a new employee.

Whatever the reason, it can be shocking when the numbers you plan for end up being wrong. To help you avoid this, here’s a list of the top 4 business budgeting mistakes many make, and how to avoid them.

1. Overestimating profits.

While it’s tempting to imagine that your business will multiply its financial success from year to year, you probably don’t realize that it’s not a sound budgeting practice. Despite this, businesses will do little more than some vague estimating to decide on their projected sales, and therefore profits, for the year.

Instead of using these fuzzy numbers, businesses need to put in the time to forecast their projected profits based on past years. That involves going back over the previous year, and possibly the year before, to make a realistic forecast for the coming fiscal or calendar year. You should also take into account any changes to your products, like the addition of another line of income, as well as any known market conditions that may impact your financial gains.

One way to minimize the potential for making this mistake is to switch from an annual budget model to a rolling forecasting model – our budgeting tool True Sky can support both, and can help you transition from one to the other.

2. Underestimating costs.

On the other side of overestimating profits is the mistake of underestimating your costs.

• Is your company going on a hiring spree this year?
• Are you planning to upgrade any equipment, like computers or printers?
• Are there conferences or other business trips that your sales team has planned?

When looking at your business’s costs, it’s just as important to consider potential changes due to inflation, for example, as it is to look at historical data. Are shipping fees going up this year? Is your rent likely to be raised? Asking yourself these questions can help you avoid those budget-wrecking shocks later in the year.

3. Ignoring cash flow.

This is one of the top problems people have not just with business budgets, but with personal budgets too – and it can be just as devastating on both sides.

No matter how much you’re bringing in per year, if you have a gap between when the money comes in and when your bills are due, you’re going to have a real problem. Do you have to pay upfront for the services or goods that you sell later? Do you have a few clients who seem to stay delinquent in their accounts? Do you have occasional major expenses that come due before you’ve collected the month’s income?

These can wreak havoc on your budget, and, worse, leave you with unpaid bills or overdrawn accounts. When you create your budget, make sure you look at when you have money in the bank, not just how much.

4. Not having the tool you need to do the job right.

If you’re still using basic spreadsheets that you have to email to your colleagues for your budgeting practices, you probably should look into investing in some new technology.

In a business, budgets almost always need to be accessible to more than one or two people. They need to be updated, and those updates need to be easy to find. You should be able to see a revision history and who made the revisions, so you can keep track of your other departments and have a better idea of the direction each is heading in.

This is why we designed True Sky as a simple, yet comprehensive budgeting tool. The software uses the familiar Excel interface, keeping the input process simple for everyone – including those employees who aren’t in the finance department. True Sky also has unique, powerful functionalities for:

• Reporting
• Analytics
• Driver-based or outcomes-based planning
• Click here to view all of True Sky’s features

For more budgeting help, check out our eBook, Budgeting Best Practices. Could your business use some budgeting help from True Sky? Contact us today!