Budgeting is one of the most crucial aspects of business planning, and yet too often it is not given the attention and input it deserves. If done right, budgeting can help you to prepare for most any eventuality, saving you time and money in the long run.
Some of the most common mistakes
we have come across in budgets are:
- Financial or
department heads creating a number they feel “should cover it” and hoping
for approval, as opposed to budget numbers being driven by the experience and activities
of the previous period combined with current information from those
on the ground.
- Not making provision for recruitment – from costs of the
actual recruitment to budgeting for additional salaries and other staff
costs.
- Not taking
contractual annual cost increases from vendor contracts (for example
rent), into account.
- Things just not adding up… Simple casting errors that throw
everything off.
- Budgeting
for expenses inclusive of VAT, resulting in over-inflation of expenses.
- Adding excess provisions and unplanned costs that never come to
fruition, bulking up the budget with miscellaneous items.
- Including costs unrelated
to revenue.
- Budgets
that are predominantly fixed costs as opposed to more variable costs that
allow some movement in line with business growth or change.
- A lack of understanding of, or ability to follow, budgeting
instructions; causing delays, missed deadlines, incomplete or
incorrectly completed budgets.
- Not monitoring trends of costs in relation to revenues compared to previous
periods.
Using
specialised budgeting software can help to ensure that these common mistakes
don’t become central to your budgeting process. If your software is
user-friendly for even the non-financial managers, the process becomes less
complex and simple errors or exclusions are less likely to occur.