Planning in your business is important and budgeting is an important part of the planning process.
In this episode of MissionBusinessPodcast.com, Bernard Broesch shares why to use a budget, and the QuickBooks workflow you can use to create and use budgets throughout the year.
If you have any questions about this podcast episode, please feel free to contact us.
Budgets Are Important
The budgeting process forces you to think through what’s going to happen and why.
- This can turn aspiration and dreams for the year into reality.
- Rather than estimating how large sales will be, you can budget for sales growth based on previous year’s data.
- You can also do the same with expenses. All parking expenses is dangerous, especially if you get the numbers wrong.
Using the budgeting process allows you to have more confidence in your data, which means you can use it more confidently to run your business. Once you have the budget in place, you can use it to see how you’re doing throughout the year. You will know quickly if you’re exceeding your growth targets or if expenses are too high, and can adjust accordingly.
Creating A Budget
The process for creating a budget depends on if your business is brand new or if it’s an existing business.
- If you have a new business, you need to create the budget from scratch.
- You can estimate revenue using your Customers>Sales and Marketing plan as an input.
- Your margins and expenses can be estimated based on research from online sources or speaking with others in the industry.
Although the budget for your new business will be based on estimates and not actual data from your own operation of the business, it is better to have this budget in place than to not have a budget at all.
If you have an existing business, you can use your prior year’s actual data to create a budget.
- Use the revenue from the previous year as a baseline for revenue for this year.
- Do you expect moderate or aggressive growth in the business? Or has business recently slowed? Be honest with yourself when creating the revenue budget so that you can rely on the data to operate the business.
- Do the same with expenses. Look at each major expense category from the prior year and use that as a baseline for your expenses this year.
Using The Budget Throughout The Year
Once you have the budget in place, it’s important to use the budget while operating your business.
- You can periodically compare your budget with actuals as part of your monthly or quarterly reporting cycle or at other times throughout the year.
- QuickBooks has features built in to compare actuals to your budget, which makes the process easy.
By doing this periodically, you can understand if you’re above or below target for growth and also do cost control. For example, if you budgeted a certain amount of money for teleconferencing and phone expenses, but the actual is three times the budget, you need to investigate why and consider changing the cost or the budget.
Need Help Setting Up A Budget?
Getting the reporting process in place for your business is a powerful opportunity.
If you need help setting up your first budget and getting the reporting workflow in place, contact Bernard today. You can also visit MissionBusinessPodcast.com for more insights that Bernard has been sharing with us in the previous episodes.
Still looking for the right QuickBooks program for your business? MISSION Accounting can help.