No matter how big or small an operation is, from a large listed firm down to a small family business, they all need a budget. While many budgets are created, they can end up being compromised if they are unrealistic, too simple, too complex, or if they are forgotten. Although big companies can find themselves in perilous budgetary positions (just think of some of the world's largest banks during the GFC), more often than not it's small businesses that lose track of what's coming in and what's going out. Therefore it's best to know how to avoid common mistakes so you don't get the budget blues.

Below are some tips on what not to do when creating a budget for your business.

• Don't over estimate revenue and underestimate costs
• Don't ignore detail - your budget is has to be thorough
• Don't be dissuaded by difference
• It has to be a working document
• Don't ignore cash flow
• Don't overlook tax expenses

Don't over estimate revenue and underestimate costs   

When creating a budget, you need to analyse past performance to see what sums are flowing in and out of the business (if you are just starting a business you might want to consult a business advisor to work out estimates.) It's best not to do your budget just after you've made a big sale or after a month when all your debtors have paid on time as these factors might not put you in the most realistic frame of mind. The trick is to be conservative when estimating your earnings and slightly over when estimating your costs, that way you won't get any nasty surprises.

Want more information on how much money you need to get you business idea off the ground? See here for a short guide to calculating start-up costs >>

Don't ignore detail - your budget has to be thorough

Don't just budget the big stuff - for you to get the most out of your budget it has to be all inclusive. Sources of income are obvious but expenses can mount up surreptitiously leaving you scrambling through your receipts box trying to find out what all your money has been spent on. From the big costs like payroll to the smaller things like office supplies, it all needs to be included.

Don't be dissuaded by difference

When planning a budget you are estimating what money you expect to come into the business (revenue) and what money you expect to flow out (expenses). Any difference between expected and actual results - which there are bound to be - should not dissuade you from keeping a budget. Rather than being a negative thing, these differences can help shed light on issues such as why your business might go through peaks and troughs. Therefore, a budget's purpose is not only about scrutinising where money is being spent and earned, it is a tool that enables you to set goals for the growth of your business.

It has to be a working document

You will not reap anywhere near the maximum value that a budget can give if you don't make it a working document. If it's something that sits in a folder on a shelf for 51 weeks a year, it's probably not worth drawing up in the first place. As previously stated, it should act as a vehicle for comparing actual and expected figures as you become aware of them. This way, you are better able to see trends shaping and respond to them. This is especially important for the number one concern of any small businesses: cash flow.

Don't ignore cash flow

Around 80 percent of small business failures are caused by poor cash flow. Many make the mistake of thinking that because they have made sales their cash flow is positive. This fails to recognise the lag between signing off on something and actually receiving payment. While there are a raft of measures you can use to help you successfully manage your cash flow, the first thing you need to do is be aware of exactly what's coming in and what's going out.  This is where a working budget is so crucial. By knowing exactly when you are due money and when you need to pay money you are better placed to forecast any arising periods of difficulty and act to protect yourself.

Having trouble with cash flow? For a look a look at what measures you can take, read 'Managing cash flow for small business' >>

Don't overlook tax expenses

Don't fall into the trap of overestimating your earnings by not taking into account the tax man's share. If you are in an established business look at your previous year's tax records to calculate how much you need to budget for. 

Need more information about reducing your tax? Read 'Five tips to cut your tax bill'>>

Creating a budget is not an easy or enjoyable exercise for most people. It requires you to delve into all corners of your business to see exactly where the money is coming from and where it's going. It can also be confronting because it lays out in stark terms the economic reality of your business. However, once you get into the process you'll realise that crunching a few numbers and is one of the best ways of keeping your hands on the reins of your business.

Need more information about budgeting? Read 'How to create a budget and why you need one in the first place'>> Additionally, view this sample budget >>