Accounting & Tax Tips

October 5, 2021

How to Create a QuickBooks Online Business Budget

There’s a saying that if you write down your goals, you’re more likely to reach them. This applies to business budgeting as well. If you set up a budget and forecast for your business, you’re more likely to meet it. And every year, you’ll likely get closer to what you forecast. This is helpful to your peace of mind when facing a multitude of challenges while running a business.

Why You Should Create a Quickbooks Budget

Developing a budget in Quickbooks helps business owners forecast their revenue and project their expenses. Doing this in advance allows you to develop the roadmap of where your business will end up for the year. The projected budget may be compared to the actual results on a monthly or quarterly basis. These are the time intervals we recommend to review your budget versus actuals report as evaluating them later may not give you enough time to react. 

After a review of the projected budget v. actuals, you can see if you’re on pace with what was expected, or if changes need to be made. Not doing this is like driving somewhere without a destination—it could lead to overspending or not spending enough to reach your business goals.  

How to Create a Quickbooks Budget

To make this work year after year, there needs to be a simple process. We recommend using QuickBooks Online for your business, which has a great budgeting feature. We’ve created a video, QuickBooks Online: How to Create a Budget, that will walk you through the steps of the process in the Quickbooks application. Please note, the Plus platform is needed to use the budgeting feature. You can call our office at 703-553-1099 to access a discount for purchasing the Plus edition.

If you’re launching a new business, you’ll be starting from scratch with your projections. If you’re a service-based business, like a doctor, lawyer, engineer, or government contractor, we suggest reaching out to your local association such as a medical society or bar association and asking them for financial benchmarking data. You can also reach out to other local business owners and ask them for feedback on financials as a new business owner. Many existing business owners are willing to help, and you may even find a mentor along the way. Leveraging our experience working with clients across the government contracting, professional services, non-profit, technology, and legal sectors, we can also help you develop a model for creating your projections.

If you’re an existing business and already using QuickBooks Online, you can export your prior year’s profit and loss by month to Excel and use this as a starting point to forecast revenue and project your expenses. 

Where to Start With Your Quickbooks Budget

We recommend starting with revenue projections. This is every dollar you bring in for selling a service or product. Forecasting revenue can be the toughest part of this process because it’s somewhat unknown with several variables. Many business owners use last year’s revenue and try to estimate growth by percentage. For example, let’s say you made a million dollars in revenue this year and $900k the prior year; this is around 10% growth. In this scenario, you may estimate growing by 10% in revenue next year. Or, if you’re selling a product in stores and you make a certain amount in each store, you could estimate how many stores you think you may sell your product in next year and multiply it by the average amount you make on each store. 

Projecting expenses is usually more predictable. A lot of business expenses are fixed, such as rent, utilities, etc. Some expenses will correspond with growth in revenue such as merchant services fees, payroll, or supplies. For example, if you’re projecting a 20% growth in revenue, your merchant fees could grow 20% as well. Now, depending on how large each budgeted expense is, this may be a good opportunity to see if another vendor may be able to provide you with a lower cost for the same service. The budget provides you with the big picture of what expenses you should focus on and analyze regularly.

Once you’ve developed the final draft of your budget in Excel, you can take this information and load it into QuickBooks by month. Our QuickBooks Online: How to Create a Budget video can help you with this process.  

Examples of How Budgeting Can Benefit Your Business

To provide some real-world examples, here are two case scenarios of how our budgeting process works and the business results: 

  1. The owner of a government contracting company focusing on engineering, IT support, audiovisual, and technical writing came to us for help developing a budget for two purposes. One was to see if his company was on pace with the revenue it agreed to charge the government agencies it supported. Fortunately, the owner already had contracts in place with agreed-upon fees. We used this information to project revenue and calculated the needed payroll for employees, as well as other expenses to perform the work. The other reason for developing the budget was for the owner to feel more confident about estimating bids for future contracts. After developing the budget and forecast for the last two years, and getting the actual financial results closer to the forecast, the owner had more confidence to bid for more contracts. Based on his profit margins, he knew he could lower his fees and still project a reasonable profit. This allowed him to win contracts other government contractors could not because they didn’t have the same financial insight to bid as competitively. As a result, the owner’s business grew an average of 70% over two years. 
  1. A partner in a large firm left to start her own firm focused on the healthcare industry in 2011. After being in business for five years and using QuickBooks Desktop, the owner wanted to step up her accounting practices. With a niche law practice and a strong base of referrals, she knew that to grow her firm and compete with larger firms, she had to provide a competitive salary and good benefits to attract employees. We converted the firm’s QuickBooks Desktop file into QuickBooks Online. From there, we helped develop a budget and forecast that focused on growing the firm, as well as estimating additional compensation and other benefits for firm employees. We analyzed salary benchmarks in the area and found unique benefits outside of health insurance and retirement, such as a yoga instructor who would come to the office and personally train employees. On top of this, the owner was looking to maximize her own retirement while providing a generous contribution to her employees. Budgeting to strategically attract and retain qualified team members has helped increase the firm’s revenue year over year since the owner started working with us in 2016.  

Why a Quickbooks Budget is Needed Every Year

To measure whether or not your business goals are being met throughout the year, an annual forecast and budget are needed. This data provides confidence to business owners like you when preparing for business growth and determining the most strategic financial investments for getting there.  

Wendroff & Associates, CPA is available to help you with your Business Budgeting & Forecasting process. To set up a free consultation, please click on the button below to schedule a time that works best for you.

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