Profit Planning with QuickBooks Budgeting Tools

When you hear the word “budget,” do you think “Ugghh!”?  If you would rather do just about anything besides create a budget, you’re not alone.  The word “budget” brings up connotations of endless numbers, constraints, the opposite of freedom and creativity, and hard work, none of which are very desirable.

Yet, the benefits of a budget are huge.  Budgets can help you with cash flow improvements, keep you on track for higher profits, and alert you to items that need further action.

Shift From “Budget” to “Profit Plan”

Instead of thinking of all the negative connotations often associated with “budgeting” how about renaming it to “profit planning.” Rather than focus on how little you should spend, start with how much revenue you’re going to make!  Then look at the expense side of your “profit plan” as protecting your profit margins so that you can ensure financial gain from all the hard work you do.  Setting budget limits on spending will allow you to control overhead and other items so you can keep more of what you make.

Use QuickBooks Budget Tools

Use QuickBooks to help you. Click on Company > Planning & Budgeting> Set Up Budgets. If you’ve already set up a budget, that one will appear. You’ll be able to edit it or create a new one. If you haven’t created a budget, the window shown in Figure 1 opens.

Figure 1: You’ll start working on your budget by selecting its year and content.

Select Profit and Loss to include all of the previous year’s activity and click Next.

On the next screen, you can include criteria, (Customer:Job or Class),so you can budget for individual customers/jobs or classes instead of by account only. Leave this box unchecked for now. Click Next.

Determining the Content

Indicate whether you want to start from scratch with your own figures or let QuickBooks pre-populate your budget with last year’s numbers. When you click Create budget from scratch. then Finish, you see a window similar to the one shown in Figure 2.

Figure 2: Budgets in QuickBooks are account-based, so yours will be set up that way.

You can decide if you want to have the same amount for each month, such as rent, or if you want to vary the amount by time of year (income and payroll fluctuate seasonally for many contractors and retailers). While you can’t enter a total and ask QuickBooks to divide it across the months, there are some fast ways to get some numbers entered and QuickBooks will total for you.

  • When you click in the cell that has a number you want to use for each month, use Copy Across.  Guaranteed to be faster than you!  You might have the first few months using one amount, (e.g. perhaps you know you have a rent or insurance increase coming on a renewal month), then you can copy the new number across.
  • Perhaps you expect sales to go up a certain amount each month. When you click on Adjust Row Amounts, you can either use the 1st month or click in a specific cell and go from there.  You can adjust up or down, by percent or dollar amount.

Profit Plan Reporting

Of course, the real power of QuickBooks budgets lies in its budget reports. Using these, you can get an instant, insightful look at how your income and expenses are performing. You can compare budget to actual, or better yet, just be alerted to the accounts showing exceptions.

Go to Reports | Budgets and Forecasts to find them. They include Budget Overview, Budget vs. Actual, and Profit & Loss Budget Performance. Once the report runs, you can change from monthly to some other time parameter if desired. The Performance report lets you see not only how you are doing.

A “profit plan” is a great tool for your business.  If you want assistance, please give us a call.

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