Five Common Budgeting MistakesSales Pro Source
November 7, 2012 — 1,006 views
Five Common Budgeting Mistakes
Accountants and other financial professionals with responsibility for budgets must ensure every action they take builds value for the organization. Mistakes in budget preparation can lead to significant financial loss for businesses and other organizations.
Not Using Generally Accepted Accounting Principles (GAAP)
An error that people make when working on financial statements and budgets is the failure to follow accounting procedures developed and established by professional accountants. The recent passage of the Sarbanes-Oxley Act of 2002 makes it imperative for publically traded companies to follow GAAP procedures when completing financial documents such as budgets. When accountants follow recognized procedures, organizations can have confidence budgetary documents have been completed to the highest levels of accuracy.
Errors in Data Entry
The simplest way to skew budgetary numbers is to make an error when documenting financial data, or an error when moving data from one document to another. For example, a common error when manually entering data is making a 9 that looks like a 7. Another simple error is adding extra zeros to numbers. Errors can be made when using a computer to document financial data. A bookkeeper making an incorrect key-stroke causing an error that eventually leads to a larger error. Always double-check your work.
Improperly Categorizing Data
The basis of an effective budget is placing historical data in the proper category. When data is placed in the wrong category, an incorrect picture of an organization’s financial situation will emerge. Inaccurate data that comes from improper documentation will not only lead to financial loss, but will make it impossible for the organization to take advantage of future opportunities.
Making Unfounded Assumptions
There is a temptation by entrepreneurs and other business leaders who are committed to creating an environment of growth for their company to overvalue either the assets they presently own, or to overstate the value of potential opportunities. Accurate budgets are based on actual financial data that has been recorded and accurately evaluated. Accountants cannot allow themselves to be caught up in the push to make assumptions not founded in sound accounting principles. Accountants do not have the luxury of supporting visionary dreams when the actual numbers do not back up the assumptions being made.
In the normal course of reevaluating preliminary budget documents, accountants may find errors. When an error is discovered, the proper procedure is to go back through all the preliminary documentation work and find the source of the error. Any attempt to correct an error without finding the source will allow the error to be magnified in final budget documents. Small errors can lead to major errors in final budget documents.