3 Ways Entrepreneurs Paint Themselves into a Corner with Budgeting

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Entrepreneurs are big-picture people. But while setting big, audacious goals and hiring a winning team are important, they aren’t enough to keep a company in the black.

When you’re thinking big, impulse purchases are easy to make. Tax prep is easy to put off. Money mistakes seem small in the scheme of things. Saving isn’t sexy.

Once investors start checking things out under the hood, however, carelessness with your company card has consequences. Even if you’ve bootstrapped your business, your bank won’t be inclined to give you a loan if you blew it all in the first six months. 

Learning to save and spend appropriately doesn’t take a Harvard MBA. All it requires is that you avoid three big-picture issues:

1. Thinking Budgeting Is for the Birds

It’s no secret that a lot of startups fail. And while there are a number of reasons for that, the 800-pound gorilla is cash flow mismanagement. The first step to managing cash flow well is having a plan —  in other words, a budget.

Budgeting does more than make room for upcoming expenses; it also ensures that unexpected ones don’t sink your ship. Anything from a decline in consumer demand to a broken air-conditioning unit can happen. 

What if you’re lucky enough not to incur expenses you can’t see coming? Congratulations: You’ve just gained some extra savings. Sink it into your emergency fund, or invest it in an area where it’ll pay itself back, such as sales. 

Budgeting is also important for analysis. What’s your business’s monthly burn rate? What categories do those costs fall into? Can they be minimized? The only way to answer those kinds of questions is by consulting your budget. 

Every time you look at your budget, ask whether it still reflects your reality. If you’re making more money than you expected at the start of the quarter, feel free to raise your spending thresholds. If you see costs rising, realize that you’ll need to grow your income, too. 

2. Mixing Personal and Business Finances

What’s wrong with a swipe of your company’s card on gas here and groceries there? While it might seem harmless, mixing business transactions with personal ones is a sure way to lose control of your finances. 

When business and personal expenses are charged to the same account, it becomes impossible to maintain an accurate budget. And if you’re ever audited, you may have to prove the purpose of each and every purchase. Don’t take the risk.

The best way to avoid making this mistake is by keeping separate cards. Thanks to its round-up feature and compatibility with mobile payment platforms, Chime’s debit card is a great choice for personal spending without fees. Depending on your specific company’s needs, there are specialized business rewards credit cards to fund purchases, manage spending, and help save money or earn rewards over time.

When carrying multiple cards, think of yourself as an employee. You’d never charge your spin class or your dog’s subscription box to your employer’s card; don’t do so with your own business.

3. Underestimating Uncle Sam

If you’re budgeting based on your current balance, you can technically spend money you’ll soon owe in taxes. But there’s a reason companies set aside what they collect in taxes and withhold from workers’ paychecks.

Remember that you’ll need to do your taxes on a quarterly basis. Based on estimated sales and labor expenses, project what you’ll owe to Uncle Sam for each three-month period.

Then, give yourself a 10% buffer: Your business may do better than you think, or you may not qualify for a dedication you thought you would. Either you’ll be happy to have the padding, or you’ll have a little extra to put into savings if your tax bill comes in below expectations. 

As you collect sales taxes and cut paychecks, set those funds aside in a separate account. That way, you aren’t tempted to spend it before it’s time to do your taxes. Choose a high-yield savings account to maximize the interest you earn. Investing what you plan to pay in taxes is simply too risky. 

Keep every receipt you receive, even if it’s for a single pack of paper. Auditors will ask for them, and “It’s not a lot of money” isn’t an excuse.

Budgeting isn’t a big deal if you start early. Only if you operate without a plan does budgeting become a major headache. 

Keep your business and personal life separate, and make sure you can pay your taxes when they come due. Everything else can and — unless you’re a finance pro — should be delegated to the detail-minded members of your team.



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