Question: What are the top things that entrepreneurs forget to account for when they are budgeting?
Question by: Tina
Tip the Scale
"Scaling may affect more areas of your business than you can anticipate. Ongoing processes such as training new team members and maintaining quality control are just some areas that might get exponentially more difficult -- without even factoring in the effect of any new operations! Budget the money and time to make systems more efficient, as new problems related to scale will inevitably arise."
Invest in Yourself
"The dark underbelly of success is busyness. With busyness, we can often neglect our own development and learning. As the leader of a business, you must invest in your own learning. You must be an expert on your topic, service or product. If you neglect this, you will be running on empty and it will wreak havoc on your drive, idea generation, and profits."
Networking Is Expensive!
"I think entrepreneurs forget how expensive it can be to do networking in the right places. Conferences, for example, are awesome for networking. However, ticket costs, hotels and transportation to conferences add up. I also never realized how much money I would spend taking people out to lunch and coffee to network with them. Totally worth it, but I wish I had budgeted it in!"
Beyond the Office
"When you're in the thick of things, it's easy to forget that there needs to be at least enough money to buy this month's pack of ramen. Preferably, there's a little more than that, but even if you cut your personal expenses down to bare bones, they do still exist. Make sure they make it into your budget, rather than stressing about them down the line."
Purchase vs. Landed
"In a product-based business, it's easy for a first-time business owner to miss the difference between the purchase price for the product and the landed price. The landed price is what really matters, because it includes the costs of freight, duties, taxes, storage, etc. Knowing the true cost of getting the product into your hands is crucial when setting the price and ensuring profitability."
The Starving Entrepreneur!
"Unfortunately, many believe in the starving entrepreneur ideology, so some purposefully forget to include themselves as a cost to the business. Acknowledge that starting out, YOU are the biggest cost to your business. Budget for your time, salary, critical benefits like medical insurance, and some vacation days."
"Many entrepreneurs don't account for how much money they will spend if their idea does not take off as fast as they hope. When budgeting, we make sure to create at least one "very worst case" scenario that does not have much or any growth, just so we know what will happen if it all goes wrong."
"If you hire employees, in addition to their wages and salaries, there are payroll-related expenses that you may have to incur, including matching contribution to Social Security and Medicare, Workers Compensation Insurance, and State and Federal Unemployment tax. Entrepreneurs often neglect to add these to their budget, which can account for an additional 30 percent of total wages and salaries."
"It seems obvious, but I think it’s many startups forget to keep their cash flow positive. Creating a strong revenue stream is always a good thing, but if you’re not in the green at the end of the quarter, all the cash flow in the world won’t help you."
Pay the Taxman
"It's really easy if you're self-employed or in startup mode to forget to put enough money aside for taxes. Budget 15 to 20 percent of gross revenue or 35 percent of net revenue (until you know your business better), and put the money aside in a separate bank account every month. Otherwise, you'll be crying come tax season."
"More often then not, you will learn that what you think something will cost is often much less than what it will actually end up costing. This goes for monetary and time costs. To get something exactly the way you want it, realize that it always takes longer than expected and costs more than expected."
"Often, we entrepreneurs plan for the predictable expenses, such as wages, insurance, incorporation fees and office supplies. We often forget auxiliary expenses, such as parking tickets, high gas prices, late fee penalties, etc. Also, it is crucial to factor in taxes when considering your budget."
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC leads #FixYoungAmerica, a solutions-based movement that aims to end youth unemployment and put young Americans back to work.