So you and your bookkeeper built your business's budget last year. Now what? Since Q1 is more than half way over, it's time to start using your budget if you haven't already. The question is, how deep in your budget do you explore? Since there are so many different ways to make use of your budget, it makes sense to play with it a lot until you can put your finger on what exactly is relevant to you and what is not. Some owners may look at variances as a dollar amount, percentages, or both. Others may look at overall expenses as opposed to the details. Budgeting is meant to be a helpful tool for dealing with your business's future, it's not meant to be overwhelming or scary. Make sure you have the time to review or the proper team in place to help you with this. Using your budget the right way will allow for growth and measured results.
If you get in the groove of looking at one or the other, you might be wasting time on irrelevant info from your monthly budget vs actual compare. Sure an increase of 150% in a single expense sounds like a big deal but not if it is only a $50 increase in printing supplies. On the other hand, a small percentage increase in Cost of Goods Sold could mean an impactful variance of $100,000. To swiftly look over these values without wasting time you will want to pull up the Profit & Loss Budget vs. Actual within QuickBooks. This report also shows $ variances and % variances. Having all of this data in front of you allows you pick key metrics to explore in more detail.
Building a budget is by no means easy and never 100% accurate. You are basically taking your company's historical data, analyzing it, talking with your team about next year's goals, and then trying to create a crystal ball. Differences between budget vs actual aren't mistakes, they are pieces of information to learn from and to mold the new budget for the rest of the year. A new budget is now needed? Well yes and no. What you do is copy your budget and input it in the 'forecast' feature of QuickBooks. Though it's called a forecast, some people use the term rolling budget. This forecast or rolling budget will now be edited as new trends develop during the year while the original budget is not changed at all. This is key for year-end as there will be several take aways from this that will aid in building next fiscal year's budget.
Maybe you were too aggressive with you gross profit margins and need to scale them back a little. Or maybe there was an increase in cost to your menu's best seller's ingredients. Possibly growth is trending better than expected and you are going to take in more revenue than planned. Better adjust the budget so you can be prepared for any tax surprises at year end. The list goes on and on, but the moral is that adapting along the way shows your truly understand budgeting.
Don't wait for a quarter to close to start looking over budget comparisons. Spending a few minutes several times a week can be much more beneficial once you make it routine. Why wait several weeks or months to realize you might be making more than expected or maybe wasting money in places that aren't necessary. Most CEOs we work with that look over their budgets at least once a week are in much more tune with their business than those that do not.
Don't be intimidated by the initial time it will take to build your first budget. Once it's built and these practices are followed, you will be wondering how you ever survived without it. Like almost everything else that we write about, we definitely practice what we preach with this topic.