Business budgeting is a very important part of running a business, regardless of whether you are a startup or an established company operating for years. Creating a budget is not a problem for most business owners. The challenge is sticking to the budget as the business grows and the spending expands.
The Problem of Hidden Costs
If you are like many owners of small and medium-sized businesses, you probably focus on the services and products you need when making a projection of your business expenses, which is what you should do. However, do you also consider the hidden costs of all these services and products?
If you don’t regularly assess your purchases for these hidden costs, there’s a good chance that you are spending far more than you should be. You might go over your allotted budget. This mistake can have implications for your business.
Laying Employees Off
To bring down spending, many companies resort to the solution of laying employees off, believing that a smaller payroll can help the business get back on track financially. Unfortunately, cutting down on your workforce will increase the load of your remaining staff, which can then lead to stress, job dissatisfaction, and reduced performance. This tactic can hurt a business more than it can help it in some cases.
Taking out Loans
Loans are a quick fix for any financial problem, but they can have heavy long-term consequences. If you get a loan with high repayment terms, it might eventually lead to even greater financial problems for your business.
Reduced Productivity
As hidden costs eat away at your business funds, you and your employees will naturally try to curb the spending. In doing so, you will inadvertently take people away from the jobs that you hired them to do. Your employees’ focus will need to be split between their actual duties and trying to solve the problems with business budgeting. The result of this would be much lower productivity.
There are a few other sources of hidden costs that all business owners should know.
Loan Interests
Most business startups run on borrowed funds. If you have taken out a loan to help you establish your business, you need to include the interest on this loan in your business budget. You will also need to be very responsible for repaying such loans on time. Otherwise, the interest cost will increase and might take a heavy toll on your business funds.
Employee Benefits
In business budgeting, many new business owners make the mistake of accounting only for their employees’ salaries. They do not consider the employees’ benefits, which they will also need to grant.
Legal Expenses
No business owner expects to pay legal fees because no one wants to be involved in a lawsuit. But if these problems happen, you need to allocate funds for this in your budget.
Taxes
If you were an employee in the past, your company automatically deducted taxes from your salary. Now that you are a business owner, you will still need to pay taxes, and you will have to compute these on your own. If you forget to consider this in your business budgeting, you might be short on funds, and could even have problems with the IRS.
An Easy Solution
Staying within your budget can be a tough challenge. Once you are aware of your business costs, you can plan your spending more efficiently and start saving valuable funds for your business. Using a budget template and having end-of-year meetings with your vendors to project your budget for next year will be helpful in determining the costs of running your business for the following year. Visit our blog or contact us HERE to learn more about running your business efficiently.
