October 9, 2019
Small business owners have a lot on their plate. They frequently wear many hats and can serve as the CEO, CFO, salesperson, customer support specialist, quality control manager, and janitor all in one day. Juggling many responsibilities is simply part of the job. Since small business owners are involved in so many aspects of their business, they may overlook the financial side of the business.
Budgeting is one area that small business owners may not pay close enough attention. It is easy to assume that you have enough money to invest in new equipment, enter new markets, or develop new products if it appears that the cash is available. But the reality is that you have to plan and put aside the money to make these investments. You cannot simply take the money from your operating income. If so, you could be setting yourself up for cash flow issues.
In my experience, small business owners typically make the following budgeting mistakes:
- Not having a business plan and strategic goals.
- Setting unrealistic sales goals.
- Spending too much money too soon.
- Making investments that are not in alignment with your mission and vision.
- Failing to budget for estimated quarterly taxes.
- Mismanaging the affairs of the business.
- Not thinking ahead to ensure that the cash is available to pay overhead expenses.
- Overleveraging the business.
- Hiring employees that you cannot afford or the wrong person for the job.
- Providing employee benefits that you cannot afford and making unrealistic promises to employees.
One or more of these budgeting mistakes can cause your business to be in financial distress. A best practice that you might want to implement is to develop a budget for the year that is based on historical data. This way you will be prepared to pay recurring expenses such as insurance, workers compensation, estimate taxes, and other year-over-year expenses.
Benjamin Franklin once said “If you fail to plan, you are planning to fail!” Failing to establish a realistic budget can be one of the biggest mistakes that you make. Feel free to contact any member of our team to help at 610-828-1900 (PA) or 732-341-3893 (NJ). You can contact Don Kaiser, CPA, principal at
[email protected]
or me at
[email protected]
. We are always happy to help.
Martin C. McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company, PC
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).
