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How to recognize potential budgeting problems


One of the most important steps in running a small business is to prepare a budget for your business. Businesses prepare budgets to help keep better track of their money and where it is being spent. While the entire idea of a budget is a great idea it does not guarantee that there won't be any problems with the budget. No matter how well prepared a budget is, many businesses find problems in the budget. Problems in the budget can be due to numerous factors, such as not allocating enough money to a certain part of your business or transposing numbers. Regardless of what the problems they can be managed as long as you can recognize the potential problems before they get out of hand.

Here are some of the more common problems that can arise when preparing a budget.


Problem one:
The first problem that can arise when preparing a budget is overstating projections. This happens more often than not because people dream big and tend to think that their business will do a huge amount of business in a short amount of time. Most of the time this happens it is not because people are trying to deliberately mislead the investors, it happens because they want to see there business succeed and realize these huge amounts of sales. When preparing your budget you are better off thinking in more realistic terms of what your business can do rather than on what you want it to do. The way to recognize this problem is to look for huge numbers in sales compared to what the business has done before or if it is a new business you should compare it to others in your industry.

Problem two:
Another problem that can arise in budgets is mismanaging the advertising timeline. This happens when you show the advertising costs as a percentage of sales in the period. What should actually be done is that the advertising costs should be shown in the period before the sales from that advertising campaign. This is because the advertising is done to help get the sales so you can not advertise and expect sales in the same period. The way to spot this problem is to look closely at your advertising expenses and see if they are in a different period from your sales.

Problem three:
Another major problem with budgets is that businesses sometime forget about the taxes that they owe and prepare a budget based on money that they don't have. One thing you should watch for is that the money from sales taxes and employee withholdings are not counted on the balance sheets as holdings, you should have a separate account for sales tax revenue so that you can keep it separate from your sales revenue. You should also have a separate account for the employee withholdings so that you don't accidentally count it as money you currently have.

Problem four:
Another problem that arises with budgets is not setting enough money aside to cover all of your costs for a certain project. Sometimes people ask for an amount less than what they actually need in hopes that they will get the money. But because they don't have enough to reach their goal they are not profitable in the end. How to recognize this problem is to look at your budget and now your business, if you know you are going to need x amount of dollars to complete the project and only y amount of dollars is written down you need to correct that problem.

There can be many problems with budgets but by recognizing the potential problems early on you can save yourself and your business from a lot of grief and potential bankruptcy. Recognizing what the problems are and why they happened can get you back on track financially.

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