The economy is showing signs of improvement, but it has a way to go. It’s more important than ever to keep a finger on your company’s pulse. One way to keep a close eye on things is to compare your budget to your actual financial results. If you haven’t created a budget yet, don’t worry – we’ll help you get started. If you do have a budget, we can help you use your actual financial results as a measuring stick with comparative financial reports. After you learn these concepts we’ll explain why you should take some time, once a month, to review and monitor performance – and take action if things aren’t measuring up.
Performance tip – Don’t forget that tough financial years have one distinct benefit – you’ll probably pay less in taxes. Also, when revenues are low or expenses are high, you can adjust your withholdings and estimated tax payments accordingly, giving your cash flow an immediate boost, rather than waiting for a refund next year.
The QuickBooks® Planning & Budgeting menu allows you to create budgets and forecasts. In essence, budgets and forecasts work the same way. We’ll create a budget in our example, but which one should you use? Experiment with both. Forecasting can help you create a best-case scenario or alternate budget, while the budget tool will offer a more realistic snapshot. To create a budget, follow these simple steps.
1. Launch QuickBooks® and select Company, Planning & Budgeting, and Set Up Budgets.
2. In the Set Up Budgets window, click the Create New Budget button in the upper right-hand corner.
3. Select the year for which you’d like to create your budget, select Profit and Loss, and then click Next.
Note – QuickBooks® also allows you to create detailed budgets for balance sheet accounts. This could help you plan for cash levels, inventory, accounts receivable, debts and liabilities, and so on. Most small business owners, however, find that a simple Profit and Loss budget is sufficient for their needs.
4. On the next screen, QuickBooks® gives you the option of creating a more granular budget – one that you can break down to the level of client, job, and class. For now, let’s choose No Additional Criteria. Click Next once you have made your selection.
5. QuickBooks® will ask if you want to start with a blank budget or use last year’s data as a starting point. If you are new to QuickBooks®, you’ll need to start from scratch. However, if your data is already in QuickBooks®, we recommend using last year’s figures to begin your budget. Click Finish once you have made your selection.
6. Next you’ll see a screen that shows last year’s numbers (you won’t see any numbers if you are starting from scratch).
Figure 1: Creating a budget using last year’s actual numbers.
7. Enter or update the numbers for your budget. Don’t forget to periodically save your work! Once you have finished, click the OK button.
Budget Tips – Use the Copy Across button if you want to enter the same amount across all 12 months. Use the Adjust Row Amounts button to adjust all of the numbers in a row up or down by the same percentage or dollar amount. Any time you want to revisit or edit your budget, just select Company, Planning & Budgeting, Set Up Budgets. Select your budget from the list and make any desired changes.
Figure 2: Using Adjust Row to increase or decrease the figures in an entire row by a specific percentage or dollar amount
QuickBooks® offers a variety of budget and forecast reports. Use these simple steps to create most of them.
1. Select Reports, Budget & Forecasts, and then choose a report.
2. A Wizard appears. First you will need to select the budget or forecast you want. Then click Next.
3. Choose the Account by Month layout. Confirm your choice and click Next.
4. Click Finish to tell QuickBooks® to create and display your report. It’s that easy!
Here are the types of reports we think you’ll find most useful.
- Budget Overview – A 12-month view of your budget.
- Budget vs. Actual – A 52-column report. This report can be a little more difficult to navigate because it shows columns for each month in addition to the 12-month totals. Once you become more familiar with QuickBooks® budgeting tools, give it a try if you are interested in seeing more detail.
Figure 3: The Budget Overview report format
- Profit & Loss Budget Performance – A comparison of your month- and year-to-date actual figures to the budgeted amounts. This report format also displays the 12-month budget. Although this report doesn’t automatically include dollar or percentage variances, you can easily add these columns. Click Modify Report, and then in the Add Subcolumns For section, select $ Difference and/or % Of Budget, as shown in Figure 4.
Figure 4: Adding subcolumns
- Budget vs. Actual Graph – This report automatically displays the current year budget. This report shows you how your actual results compare to your budget. You can choose between several views –
- P&L By Accounts – In this view, QuickBooks® compares your Profit & Loss accounts, also known as income and expense accounts, to the corresponding budgets. This view automatically sorts variances by difference, and displays up to six accounts at a time.
- P&L By Accounts and Jobs – In this view, QuickBooks® compares your Profit & Loss accounts job-by-job. Jobs are displayed by greatest variance – the job with the largest total variance from budget will be presented first. Again, you can view six accounts at a time.
- P&L By Accounts and Classes – In this view, QuickBooks® compares your Profit & Loss accounts on a class basis. You can view up to six accounts.
Report Simplifying Tips: You can simplify your report in several ways. For example, some users delete the % of Budget column. You can do this by selecting the Modify Report button, and then in the Add Subcolumns section, deselect the % of Budget column checkbox. If you want your budget report to fit on a smaller area of the screen or page, you can shrink the width of the columns by dragging the diamond between columns, as shown in Figure 5. When you release the mouse button, choose Yes when QuickBooks® asks if you want to resize all of the columns to fit the data. Last, you can click the Export button and send the report to Excel.
Figure 5: Drag the diamond between columns to resize
Class Tracking tip: You can track your costs by department, job, or other category. To enable class tracking, select Edit, Preferences, Accounting. On the Company tab, select Enable Class Tracking.
Graph Printing tip: A limitation in QuickBooks® is that you can only print one page of budget graphs at a time. To create a hard copy of each report group, click Next Group and then Print.
Whether or not you use QuickBooks®’ budget tools, most business owners find it helpful to compare this year’s results to last year’s. The comparison will give you an idea of trends and anomalies. A comparative report is easy to generate.
1. Select Reports, Company and Financial, and Profit & Loss Prev Year Comparison.
2. By default QuickBooks® will display this year compared to last year. If you wish, you can easily create a multi-year comparison.
a. Click Modify Report.
b. In the Columns section, select Year from the Display Columns By drop-down list. Click OK.
c. On the report screen, enter a date range and then click the Refresh button. A multi-year comparison covering your date range will appear onscreen (see Figure 6). If you like the format you created, click the Memorize button to save it for later use.
Figure 6: A multi-year report
QuickBooks® budget and forecast tools are easy to use and can help you plan the future for your business. Month by month and year by year, you can keep an eye on your results as they compare to your budget. You won’t be caught by surprise by variances long after it’s possible to take any action!
Here’s another helpful QuickBooks® tip – Your accountant’s copy of your QuickBooks® file can be converted to a normal QuickBooks® company, i.e. a .QBW file. You’d only want to do this in certain circumstances because you can’t merge the converted file with your .QBW file. But if you lose your data or your computer, having your accountant’s converted file is much better than starting all over from nothing! Your accountant might not know how to do the conversion. Here are the steps he or she can follow.
1. Select File, Utilities, Convert Accountant’s Copy to Company File (QBW).
2. Choose the file to convert.
3. Click OK when prompted to confirm the conversion.
4. Name the new company file, and click Save.
A final warning prompt will appear to confirm that the new file will overwrite any existing client copy.
Figure 7: Converting an accountant’s copy to a .QBW file
The most prudent course of action, of course, is to make frequent back-ups of all your data. Use a removable drive, such as a USB thumb drive. They are inexpensive and portable.