Don’t Put a Budget in QuickBooks
By: Ruth King
I shouldn’t but a budget into QuickBooks? That’s insane…is probably what most of you are thinking.
Yes, budgeting is critical. But, how most accounting software packages use budgets is a recipe for a false sense of security.
Most of them, when you enter a budget, report actual against budget for the month and potentially year to date.
That doesn’t give you the data to make good business decisions.
Budgeting should be based on what you’ve generated and what you’ve spent year to date. This gives you the information to know whether you have spent too much, your revenues are lower or higher than budget, and much more.
Since a whole budget won’t fit in this format, please download this file to see what budget vs. actual should look like.
At the beginning of the year, budget vs actual is all the same color. I show actuals for two months (the actual amounts are highlighted in yellow). The company budgeted $2,200,000 for the year. After two months, assuming the company makes budget for the rest of the year, the actual revenues will be $2,167,357. Maintenance revenues are ahead of budget. Two months into the year, the company is just about on budget with respect to revenues. QuickBooks doesn’t tell you this.
Total gross profit is budgeted to be $1,299,695 and year to date it is $1,269,856 assuming the company makes budget for the rest of the year. Again, after two months, the company is about $30,000 under budget. This can easily be made up in subsequent months.
You can see the actual expenses against the budgeted overhead expenses. Again, the owner can see if they are spending too much or are on budget for the yearly amounts. QuickBooks doesn’t tell you this information.
Each month, the owners can see whether they are ahead or behind the yearly budget based on actual numbers. They can take action based on what they see. If they are six months into the year and they are way behind budget, the question needs to be asked: how do we make it up so that we meet budget or do we need to change the budget?
If they are six months into the year and they are way over budget, the question needs to be asked, what are we doing right or do we need to change the budget?
QuickBooks can’t show you this information based on how they report budgets on your P&L statements. You need more detail to manage the company properly.
Unfortunately, most of you won’t do this: revenues should be reported weekly.
If you want to grow profitably, your field employees should know what they need to generate every day and every week. Then, there are no surprises when the monthly profit and loss statement is published.
Weekly revenue budgets can easily be projected from your yearly budgets. The template is in my monthly financial review package described below.
Does entering actual data into a budget take more time than just looking at numbers on a QuickBooks report? Of course.
Taking the time to enter the numbers gives you a much better picture of where you are each week and each month. Then, you can take action – keep doing what you are doing well or determining why your expenses might be ahead of budget and taking action to correct the overages in expenditures.
Ruth King is known globally as the “Profitability Master,” and is a a thought leader in entrepreneurship and business. Her books have been recognized as among the greatest in numerous industries. Learn more about all her business activities here.
