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Common Budgeting Mistakes Made By Startups

If you have a brand new business and you've never been a business owner before, it can be hard to know how to budget and you may find yourself quickly running out of cash.

Failing to properly plan for all the things that your business will need, such as staffing, premises, and equipment is a sure-fire way that you'll end up with money worries. Your lack of planning could also mean that potential investors see you in a negative light. So what are the common budgeting mistakes you can make, and how can you avoid them?

Not having a strategic budget

As a start-up, it can sometimes be hard to see the long term. So when you get a little bit of money in, you spend it on acquiring the best equipment there is and hiring personnel to cope with the upcoming demand.

But what if that demand doesn't happen? Suddenly you have no cash reserves because they've been spent on the equipment and you've got personnel to pay. You need to be able to strategically plan your budget not just for what you hope will be happening, but for a worst-case scenario as well.

Underestimating your start-up costs

You've bought the equipment, you have the personnel and now you have clients. But you've forgotten one crucial thing, your clients have payment terms.

It's taken you three weeks to complete the project for your client, you've sent them the invoice, but your terms are 90 days. That means that from the start of the project until the money hits your bank account could be almost 4 months.

During these 4 months, you'll still have to pay your employees, your running costs, and any marketing expenses to bring in new clients, and that's without factoring in any clients that are on a freemium model. Until you have a regular supply of clients who are regularly paying you, you'll have to shoulder these costs yourself.

Hope for fast-paying clients, but plan for the worst-case scenario.

Underestimating ongoing costs

You might take into account areas such as rent, staffing costs, and software licenses, but have you thought about packaging? Insurance? Pensions? These additional costs can quickly add up.

To help account for these you'll need to take a long, hard look at your business and do as much planning as you can. Talk to other people who are in your industry to see if there was anything that they underestimated or didn't take into account at all.

Not having the right prices

This is something that most businesses find can be hit or a miss. What you may find you end up doing is calculating your costs and adding a bit extra to it.

But this can have its pitfalls. Did you account for the time taken to package the items, or dealing with customer requests, or even queueing in the Post Office to send the items off?

You need to account for your time costs, not just your physical costs when you're working out your pricing. And as for how much your time costs, how long is a piece of string? You need to look at the value your product brings to your clients and how your competitors are charging for their products. This will give you a rough idea of where you should be pricing yourself.

Not having a contingency plan in place

Anything can happen in the world of business. That large client you've been negotiating with could go elsewhere, or your product might have a flaw that needs to be worked out, meaning you have to push production back further than you thought.

This can have a huge knock on effect with your budget.

One way you can help guard against this is to give your clients realistic expectations on what they can expect and when they can expect it. Make sure they understand there may be bumps along the way and that you'll always keep lines of communication open with them. This will help stop them from becoming disillusioned with your business and the promises that you've made.

Summing up

This has been a quick tour around some common budgeting mistakes, and now you know what they are, you can put plans in place to avoid running into them. Some of these plans may be easy to implement, but others may take some time, just make sure you leave no stone unturned when it comes to your budgeting.

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