7 Most Common Small Business Budgeting Mistakes (And the Accounting Software That Can Help Get Your Business Back on Track)

7 Most Common Small Business Budgeting Mistakes (And the Accounting Software That Can Help Get Your Business Back on Track)

7 Most Common Small Business Budgeting Mistakes (And the Accounting Software That Can Help Get Your Business Back on Track)

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Budgeting is more than a buzz word — it’s an effective way to make sure your business is meeting its goals. Although every small business is unique, there are several common budgeting mistakes that a lot of new and existing business owners and entrepreneurs make. In this article, we discuss small business budgeting mistakes that owners often deal with, why budgeting is essential, and how to incorporate budgeting into your overall business strategy to help your business grow.

The Importance of Budgeting for Small Business Owners

It’s important not to overlook the power of keeping a budget for your business. You can come up with a detailed business plan and year-end goals, but you’re only likely to meet those targets by knowing exactly where your business’s money is coming from and going to. 

Accurate budgeting for a business doesn’t have to be complicated. You can start by adding basic categories — like sales, expenses, accounts receivable, and accounts payable — to a spreadsheet. As you get more comfortable, build up to including the following:

  • Estimated revenue
  • Fixed expenses
  • Variable expenses
  • Startup or one-time costs
  • Cash flow
  • Profit (Learn the differences between cash flow and profit here)

Budgeting will allow you to keep track of how much you’re selling and compare it to how much you’re spending. You’ll be able to see where you’re overspending so you can course correct before it causes any major problems. Additionally, you’ll make it easier to pay every bill on time and know when an incoming invoice is overdue so you can follow up on it quickly. 

Furthermore, when your business sets out to get business credit cards or small business loans, you’ll need to prove that your finances are in order. Your personal credit and business credit are both impacted by your payment history, so setting yourself up for success to make on-time payments with a small business budget is vital to keeping your creditworthiness. If business credit confuses you, check out this article for a walk-through from Nav’s experts on how to establish business credit.

At the end of the article, we cover accounting software that can remove the burden of budgeting and do most of the work for you. As you know, your time is valuable — and limited — as a small business owner, so try to delegate tasks when you can. 

7 Most Common Small Business Budgeting Mistakes

Now let’s look at the most common budgeting errors you may be making in your small business and how to fix them.

1. Not creating or following a budget

This is the most obvious mistake: You haven’t formed a business budget or you did create one but you’ve been too busy to look at it. We want you to understand that creating a budget can — and likely will — save you time, money, and stress. Any business owner would like wiggle room in their spending or an emergency fund for unexpected costs, and a realistic budget can make those two goals happen. 

Start small and include the basics, then aim to look at it once a month at least and update as needed (think of it as  a flexible, shifting document rather than a static one). If you had one previously, look at last year’s budget before you start on next year’s budget and adjust for inflation and other changes to your business. We promise: The first step is always the hardest.

Eventually, you may want to create several separate budgets — including an operating budget, a financial budget, a cash budget, and a labor budget — or hire someone to manage them for you.

2. Failing to make SMART goals

Goal setting is essential when running a business, but certain types of goals are more effective than others, even in budgeting. A SMART goal has the following features:

  • Specific: You know exactly what you want the outcome to be.
  • Measurable: There is data you can look at to see how close you are to achieving the goal.
  • Achievable: The goal is possible to obtain with the resources you have or with resources you can add to your business.
  • Relevant: The goal makes sense for your overall business plan. 
  • Time-bound: You choose an exact date by which you want the goal to be accomplished.

Setting SMART goals gets rid of any uncertainty or vagueness that can come with goal setting. You know exactly what you’ll be doing, why you’re doing it, and when you’ll finish it. SMART goals are flexible, so if plans change, you can alter them. But it sets your business up for success in a way that other goals might not. When you’re budgeting, making sure your sales, revenue, and operational goals follow the SMART method can increase your success.

3. Underestimating costs

Your business costs, also called expenditures, will make up a big part of your budget. Not tracking previous or upcoming business expenses can lead to overspending. And this is especially true in uncertain times. When you’re forecasting your business’s spending, plan for rent inflation and higher prices in general for things like travel, products, shipping, labor, and equipment. 

4. Overestimating sales

A budget helps you to make accurate predictions for how well your business’s sales will perform, which is essential when you’re planning how to reach your revenue goals each year. If you’re not a new business, look to your previous year’s sales to make realistic projections for the coming year. Also, conduct market research in your industry and changes in the competition, especially when the market is volatile and shifts are happening quickly.

5. Not sharing the budget with key business stakeholders

You’ll want to make sure everyone in your business is on the same page with your small business budget. The number of people you’ll share a budget with depends on how many people work in and with your business. It’s important to be sure to share the budget with the Board of Directors, any investors or advisors, your employees, and your suppliers if you create a budget that’s specific to a product. That way, everyone is aligned on the business spending and goals.

6. Failing to consider or pay business taxes

No one enjoys paying taxes, but it’s also unavoidable. Take the stress out of tax season by building the taxes you’ll owe into your budget. There are several types of taxes that your small business may be required to pay to the state or the Internal Revenue Service (IRS), like income tax and employment tax. Consult a financial professional about which taxes you’ll owe so you can be sure to save for them. Once you know your tax rate, deduct it from your net profit and put it aside in a savings account. 

7. Not using a reputable accounting software

Getting help with financial planning by finding an accounting system that works for you is essential for any small business owner. You can use a spreadsheet, but a certified public accountant (CPA) or accounting software — or, ideally, both — helps make your budgeting much easier and more accurate. Accounting software can automate the process of inserting sales and expenses so you don’t have to do it manually. Software can also create financial reports that show you the state of your business at the click of a button. 

Accounting Software for Business Owners

Whether you’re looking for help with the math involved in budgeting, automation of your accounting processes, an easier tax season, or all of the above, using accounting software may be the right choice. Here are some of the top options on the market.


Bench offers bookkeeping and tax preparation services. Its services include retroactive bookkeeping if you need to catch up. You’ll pay per month for the bookkeeping service and it has two plan tiers.

Online Bookkeeping by Bench

Bench is the all-in-one financial solution that helps you grow your business. Get your bookkeeping, Learn More


Bonsai targets freelancers, self-employed individuals, and small business owners to assist with the entire life cycle of their work, from proposals to tax season. You’ll pay a monthly fee, choosing between three tiers of plans.


FreshBooks is one of the more well-known accounting software options that also offers services like invoicing, mileage tracking, and financial reporting. You’ll pay a monthly fee and choose between three tiers.

FreshBooks: Small Business Cloud Accounting Software

The best cloud based small business accounting software. Send invoices, track time, manage receipts, expenses, Learn More

Intuit QuickBooks Pro

QuickBooks is very popular with small business owners because it offers an all-in-one accounting solution. Depending on the subscription you choose, you can access its services like bookkeeping, cash flow management, and inventory management.

Pro Small Business Accounting Software by Intuit

Simplify your accounting with QuickBooks Online. Easily track income, expenses, and more with accounting software Learn More


Sage offers small- and medium-sized businesses accounting software that can be used via desktop or in the cloud. It also has accounting and other products that target industries like construction and contracting for a monthly fee. 


1-800Accountant can help you organize your business bookkeeping and taxes using its software. You can also access a dedicated  CPA by paying a monthly fee. There are four subscription tiers to choose from.

Find an Accountant with 1-800Accountant

1-800Accountant is ideal for small businesses. Our dedicated team of experienced accounting professionals and Learn More

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