Budget Blunders: 5 End-of-Year Planning Tips to Live By

Posted 22 December 2014 12:00 AM by Jennifer Andrasik

As the year comes to a close, there's one task every savvy small business owner knows will make or break the upcoming year.

Budgeting. As necessary as it is, it's something not every company does correctly, turning million-dollar ideas into financial nightmares.

These are the five biggest budgeting rules to live by when creating next year's plan:

1. First, Get Real

The No. 1 thing to avoid when creating your business' budget is overstating your projections. It's never smart to assume sales will be through the roof, essentially overpromising and drastically underperforming. Be conservative, and set a realistic goal. It's far better to underestimate your business potential and come out on top in the end.

2. Find the Bare Minimum

Rent, wages, telecommunications, and shipping costs - these are all examples of the bare essentials you need to pay for your business to function. When starting a budget, list every essential fee to find your base operating cost. Also, don't forget to estimate for any fluctuations, like upcoming rent increases, major repairs or legal obligations.

3. Knowing the Difference Between Revenue and Cash Flow

It's incredibly important to know that just because there are business deals in the pipeline doesn't mean cash will immediately be flowing in.

"In virtually every transaction, there is a lag time between the finalization of the deal and the completed cash collection," Entrepreneur magazine writes. "This is a fact of business and should not be a problem, assuming you are prepared. Unfortunately, many businesses aren't and run into serious cash-flow problems because they spend money they don't yet have."

4. Seasonal Slumps and Strides

Does a majority of your business come from a seasonal sale, event or weather pattern (e.g. summer construction)? Budgeting for this expected boom in business will undoubtedly make or break your entire year. It's important to figure in variable expenditures like seasonal labor during the on-and-off-seasons.

5. Don't Forget Taxes

It seems obvious, but when rounding out your budget, always remember that Uncle Sam takes a pretty large chunk of change from your wallet. At the end of the day, sales revenue may seem larger than it really is, with revenue and employee withholdings sitting temporarily in your bank account. Proper balance sheets shouldn't consider this money as liquid cash.

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By Fleetmatics