Budgeting can be a challenge for any small business owner. Knowing when to spend and when to save can be crucial to surviving those early years. Yet small businesses consistently make a few of the same mistakes—mistakes that inevitably force them to either restructure or close for good.
Here are a few of the most common budgeting mistakes small businesses make…along with tips that can help you avoid them.
Mistake #1: Lack of Strategy
The day a small business first opens its doors, a solid business plan should be in place. Many small business owners, eager to get started, jump in without having a good, detailed business plan. Several resources are available to help set both short- and long-term financial goals for your startup. Ask advice from an experienced entrepreneur or a seasoned business analyst who can possibly spot a few things you might have missed.
Once a business plan is in place, it’s important to continue to review that plan regularly. Another common small business mistake is losing sight of that overall mission over time, leading to costly mistakes.
Mistake #2: Underpricing
When a competitor comes to town, undercutting everyone’s prices to land a job, it’s tempting for other businesses to reduce prices to compete. The competitor likely has a lower operating cost, often at the cost of quality. If you shrink your prices to compete, you’ll either have to operate at a loss or reduce the value of the product or service you’re providing to avoid losing money. Either of these choices can spell death to a growing business.
Instead of slashing prices to compete, emphasize to your customers that your product has a value above and beyond that offered by competitors. Let customers know exactly what they’ll get when they choose your business over others. This enthusiasm for your own value will be contagious.
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