Most businesses have fairly complete budgets. Costs like rent and insurance always make it in and they usually include estimates for utilities, labor, office supplies, and raw materials. Yet it always seems something fails to make it into the budget, either because of oversight or underestimation. Let’s look at a few common items that don’t always appear in the monthly budget.
Shrinkage or loss of material from employee or customer theft is a known problem for most store businesses. Retail businesses alone lose around $123.4 billion every year. While some employees steal maliciously, others steal unconsciously. Say 10 employees take a company pen daily at $0.10 per pen. Assuming a 5-day work week, that’s a $260 annual loss. If the business also loses $260 worth each of paper, paperclips, staples, markers, and tape, that’s $1560 a year just in office supplies. While you might want to think none of your employees would steal from you, shrinkage needs a place in your budget.
Many businesses employ Net-D payments terms, such as net-15 or net-30, which give customers a period of time to pay off the invoice. While this is good for customer relations, you need to pay your employees at the end of every pay period. This often leads to ready-cash shortages. Fortunately, a trusted bank will often provide a line of credit to finance the business or payroll on a short-term basis. The understanding is you’ll pay off the line of credit in a certain period of time, similar to how you expect your invoices to be paid within X number of days. If you do or plan to use this kind of financing, it should also appear in your budget.
Fees are something many people forget to include in their business budgets, even if they are technically business expenses. For example, many professionals need to maintain licenses and memberships in professional organizations. Some businesses require permits to operate. It’s also wise to budget for legal fees and accounting, at least if you outsource some or all your accounting work. These kinds of one-time or infrequent costs are easy to overlook, but can prove problematic if you don’t include them in your budget.
Forgetting to include things in your budget can leave your year-end profits looking anemic and confuse anyone dealing with your finances. Everything from shrinkage to professional fees will chew down your profit margin. You may know that the bank is financing payroll, but it doesn’t mean your new bookkeeper will immediately understand that. The more complete your budget, the smoother things will run.