Apply Personal/Household Budgeting Principles to Your New Business.
Rags to riches stories are such a joy to read. Everything is happy and positive! But, what about the riches to rags stories? They’re not so great and they’re often caused by abandoning solid budgeting principles.
It’s amazing to read stories about people who had plenty of money – a mortgage free home, credit cards with low or no balances used for emergencies only, cars and recreational vehicles paid for – you get the picture – and then started a business and went bankrupt!
Perhaps not overnight but sooner than one would expect.
Of course, sometimes there are extenuating circumstances. Sometimes a business just doesn’t have a chance at success. Any number of factors can play into that.
But, what about the people who simply failed to apply the normal financial behaviors that made them financially healthy in their personal lives, to their business?
They had everything going for them. Life was good. So, what happened?
They decided to branch out…maybe they followed a dream or came up with an idea they thought was a winner, but it turned out it wasn’t. Then, BOOM. Failure.
Upon examination, we can usually pinpoint what went wrong. Among the reasons is: Abandonment of the financial behaviors that made them financially successful in their personal lives.
Take the budgeting exercise, for example. Most financially successful people create and follow a budget. We’re not talking about trust fund kids or billionaires here. We’re talking about a regular person who took his finances seriously, steered clear of debt as much as possible, planted some roots…and got some savings going.
No doubt, he followed some budgeting principles.
You know, good old fashioned common sense and some proven best practices.
Those people are not accidentally financially stable. It was premeditated. They did things the right way. Good for them.
But once the business gets started, some rules may have gone by the wayside. Like budgeting, for example. Sometimes the new entrepreneur is out of his element and finds he’s too busy to budget. Perhaps he has forgotten how important budgeting is.
Money comes in and money goes out. When the outflow is bigger and faster than the inflow…well, it’s clear what happens.
So, why do people who are normally so responsible about finances fail to plan and budget for their new company?
Often, it’s because they have so many other things to do once they’re running a business of their own that they take their eye off that particular ball. Even if they have help, it’s still their ‘baby’ and they find themselves involved with almost everything.
Maybe they’re tired or overwhelmed from being involved with almost everything and they hand off certain functions to others without setting proper expectations.
You know like when you let a generally reliable, high functioning and thinking office clerk do all the buying of supplies without making expectations clear?
Or you fail to curb spending that seems wasteful…like this:
Just before almost everything became electronic, there was a clerk in a mid-sized company who purchased actual printed forms regularly without ever taking stock of how many they had in the warehouse and how many they actually needed. At last count, they had a 25-year supply of printed forms that are now obsolete!
Why did this happen? There was no budget, no expectations, no follow up and certainly no common sense used. Yes, incompetence also.
Business owners simply must avoid situations like this. No good can come from flying by the seat of your pants when it comes to how the money is spent.
Start early. Apply good common-sense rules of budgeting.
And, of course, get some help. Talk with your bookkeeper or accountant for advice and budgeting tips for your type of business.
At Bookkeeping Lead, we’ll be pleased to provide you with that advice, and much more. Book a free, no-obligation consultation today and let’s get started.