Being a budget manager in a small company can be a tough job. Some managers have it easy, yet some managers can have incredibly complicated budgets involving vendors, contracts, equipment, staff and plenty of other things to consider. What makes the job even harder is that each manager has to predict at the beginning of each year how much they are going to spend and getting it wrong can have large consequences.
It is easy to understand how overspending can be a bad thing. What is often confusing to people is that underspending can be just as bad as overspending.
Overspending in One Area Causes Underspending in Another
It is possible that if you have over projected your budget, or part of your budget, you have had to make cuts elsewhere in the budget to offset. Those cuts can be especially damaging if you have to pause or suspend services, for example, to balance the budget. This was recently seen in California, with underspending on education and pension contributions.
Damage to Reputation
If you underspend one year, it becomes more difficult to justify the same budget in subsequent years. If you were able to make do with less than was budgeted this year, why would you need to budget the full amount next year? This results in a cost to your reputation that is both difficult to quantify and hard to overcome.
Risk Stifling Growth
If you are underspending, you likely aren’t providing the resources that you will need to grow your business. Also, if you push expenditures from one fiscal year into the next, it can overload the next budget resulting in further cuts next year.
Service Will Suffer
Underspending can damage service delivery. It may seem obvious, but underspending can hamper your ability to engage in business. If you have reduced staff, you will have less bandwidth for service delivery but will have reduced payroll cost. If you skip buying a service contract for a piece of equipment that is essential to your business, you will have to pay out of pocket for any repairs or service as the need arises. Repairs on end-of-life or out of warranty equipment can be disproportionally expensive, further impacting your bottom line.
As business becomes more and more dependent on its technology, don’t damage your chances of success by underspending. Contact us today for help.