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How A Badly Calculated Budget Can Become Innovation’s Worst Enemy

A poorly calculated budget all too often becomes the reason why many companies fail

14Sep

Building up a successful brand does take a considerable amount of time, but mostly the ability to catch where the interest lies in regards to innovation - providing something entirely new that your potential customers ought to want. But what are the known enemies of this whole 'innovative' approach in entrepreneurialism?

For some, the lack of a clear view on the opportunities that may arise can be the first step towards 'game over'. For others, the team attitude towards the challenges they need to face and mostly the lack of patience for steady growth. In our opinion, a poorly calculated budget often ends up becoming the sole reason why many companies fail to succeed just a few months after they started. Let’s understand the reasons why.

When budget and expectations don’t match

When we start this exciting adventure of entrepreneurship a good bunch of dreams do show up, i.e., making 10k a month, materializing projects, becoming a leading company in the industry you desire to work, managing over 100 employees, getting promos at authority sites and magazines, etc. But how far are those dreams, and what do we have to do to make them a reality?

The truth is most emerging companies have a restricted budget during the startup stage, often needing the aid of banks in the form of loans to buy machinery, or to keep the cogwheels moving a couple of months ahead without worrying about the income being made. That’s what reality tells us. Thus we cannot constantly be thinking about making 10k a month if we barely cover the monthly expenses.

Be realistic about what you expect to achieve in both short and long term. Having too high expectations may seem great, but in the end, this only leads to a vast amount of frustration.

When you go way beyond your budget

What happens if we choose to ignore the reality of our budget and only live to the expectations we have? At first, that can be 'cool', as you are living up to the standards of successful brands in the market, probably leading to interesting business contacts by attending social gatherings… But what should come up when the novelty hype ceases, and you don’t have the cash to support such ventures?

That scenario explained above is the main reason why many startups meet their end way before they can experience the benefits of all the hard work. Businesses aren't just about being the biggest show-off, to brag about your cool new office or how much you happen to be making a month. For most successful business people, the story couldn’t be further from that: they tend to present themselves as quiet, down-to-earth people, with clear goals and drive to work as hard (or even more) than their employees.

Stick your expenses to what your budget can afford, and avoid comparisons, as they do much worse than good in what respects to fulfilling your dreams. In the end, is far worse to be acknowledged as the one who went to bankruptcy with a brilliant business idea than to be the typical entrepreneur who’s waiting to sky-rocket its investment.

What to do after your budget seems to be forgotten?

And that’s the sole question many business people tend to ask themselves! First of all, you need to address how far your expenses go to the point of compromising the productivity chain of the product you are selling. If, for example, the expenses were limited and can affect some of the comforts you enjoy (let’s say expensive coffee, magazines, eating out, attending to social gatherings), then stick up for it, as no further damage is done. The real issues begin when you go way too far with your extra expenses, and you didn’t consider the amount of money needed to keep the company running, to pay your employees, to cover any machinery damage, etc.

The first recommendation would be to get an accurate picture of what you need to earn each month to keep your investment safe. A Preventive Maintenance Plan is a must-have asset for avoiding unexpected extra expenses, but other factors end up leading to additional expenses.

Consider the fees you are paying for rent, utility bills, the quality of services provided, and review that same list on a semester basis. By doing so, you can check where to cut extra charges, how to improve your current workplace, etc., as, over time, customer policies are changed, infrastructure adjustments tend to alter mobile communications and many other elements that end up damaging your productivity in the long term.

After all the obligations are covered, then you can decide the money that’s left to spend - how much you would like to spend on your desired lifestyle, but mostly the amount you would like to save per month. Creating your own savings fund or investing in the proper markets also open the gates to new business opportunities that, frequently, end up being in those areas we never imagined we could venture.

We hope this guide can give you a place to consider your current behavior towards your business and a course of action in case things aren’t turning up to be as you imagined not so long ago. Good luck!

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