The Top 3 Small Business Budgeting Oversight You Must Stop

Running a small business is like riding a roller coaster 🎢: thrilling and full of ups and downs. I think that’s why so many of us get into the gig in the first place. It’s exciting. No day is the same and when it’s good, it’s so rewarding. But when it’s bad. Well, then, our entire identity is on the line. Let’s be honest. The number one cause of down days usually has to do with… feeling stressed about money. 

But when it comes to keeping your financial house in order ie budgeting for your small business, there pitfalls you absolutely must avoid. Why? So that when those lows come, which they will, you can rely on your financial security to get you through to the other side. 

In this blog post, we'll dive into the top three budgeting mistakes that small businesses often make.

1. The Tax Tango: Don't Trip Over Your Savings

Let's be real, taxes are an essential part of our society, and no matter the way the cookie 🍪 crumbles, you have to pay them. When you get caught in the fear/avoidance cycle remember: They fund essential services like clean streets, police officers 👮‍♀️, and a well-functioning government. 

a. The Over-Saver or 'the Fear of the big bad government' small business: This person stashes away a mountain of cash for taxes in an ordinary savings account, thinking it's better to be safe than sorry. But here's the truth – that money could be working harder for you elsewhere. 

Solution: Make sure you fully understand your tax bracket (think both state and federal), and make sure you minus your expenses from your revenue THAN save a % towards taxes. 

PRO TIP: Put money you’re saving in a high yield savings account so you can make money on your money. 

b. The Under-Estimato or the “I’ll figure it out later, hide under the sheets’ small business owner”: On the flip side, some folks forget that expenses exist. They see their revenue as their take-home pay and then are blinded by a hefty tax bill.. for years. The problem with this strategy is if you spend a few years doing this, you could end up paying ALOT in taxes and it could take a very long time to pay it off. And what’s worse, is that you’ll start a long payment plan with the IRS while you still have to pay new taxes in the future. NOT worth it.

Solution: Get real about taxes. Make sure your financial systems are EASY and stay on top of your expenses monthly, if not weekly. Make sure you have the right team. A financial planner is not an accountant, and an accountant is not nessesarly a book keeper. Understand your different options for support. A finance coach could help you create these systems and a book keeper could help you manage the day to day. An accountant can help you save the most money on your taxes and a financial planner can help you understand your retirement tax advantages. Which leads so perfectly to number two. 

2. Retirement Regret: 'Or I work for myself I can’t retire.'

LIES LIES LIES

You've got your hands full with the daily grind of your business, and thinking about retirement might feel like planning a trip to Mars. But ignoring your retirement savings is a mistake you'll regret later.

Solution: Be a boss and prioritize retirement planning. Explore options like a Solo 401(k), SEP IRA, Roth and Traditional IRA. Start socking away those funds and enjoy some sweet tax benefits while you're at it. The earlier you start, the more secure your future self will be.

And the last biggest mistake small businesses make.

3. Wishful Thinking vs. Financial Reality: Or ‘If I make this investment in my business THAN I’ll make more money mindset’

The number one budgeting oversight small businesses make? Making investment decisions based on daydreams rather than cold, hard numbers. It's time to get real.

Examples of this: Buying a piece of equipment, doing training to offer a new service line, or hiring support staff.

Solution: Before you dive into any investments, do your financial homework. Calculate your real profit – that's your revenue minus expenses. Now, see how long it'll take to recover your investment. If the numbers add up, you're on the right track.

In a nutshell 🌰, steer clear of these budgeting misstep, and your small business, your sanity and your mental health will thank you later. Don't be afraid to seek expert advice when needed, get serious about your retirement plan, and make investments that make financial sense. Tough love? Absolutely, but that's what The Budget Mom is all about – helping you boss up your business finances for good.