Are you thinking that budgets are difficult to produce in Xero? – They’re not! Budgets are an important tool that allow you to plan and understand how you are performing in your business. Budgets force you to plan ahead and then you can more easily understand why your performance is either exceeding or not meeting target.
The actual process of setting a budget also gives you the opportunity to step back and review how things could be done differently in business. Asking yourself questions such as what has worked well and what has not?
When you have created a budget you can then run your Profit and Loss Report in Xero showing Actual versus Budget as in the diagram below. In the diagram below we can see both the Actual versus Budget Profit on both a monthly and year to date basis.
Xero makes it easy to set up an ‘Overall Budget’ and you can also set up ‘Child or Departmental Budgets’ if you are using the tracking categories in Xero. If you are using categories to track services it can be useful to have a budget for each service area within the business. For example my creative clients often set up a budget for each of their service areas such as SEO, Digital, Branding etc. Another Real Estate agent client was using budgets to track the performance of each of the different regional offices. These are just a couple of examples of the many ways that tracking and departmental budgets can be used.
You can create the budget in two different ways. The first uses the Xero Budget Manager worksheet shown in the picture below. Select the start date, if you would like to include any actuals and then the period you would like the budget to cover. Then select ‘Update’. You can then fill in the fields manually or click the green arrow and use the simple formulas.
The simple formulas allow you to automatically update the other month fields by; the same fixed amount each month, adjust by a set amount each month, or adjust by a percentage each month.
The second way to create the overall budget is to import it via a CSV file. I would recommend that you take this approach if you have a large number of departmental budgets you are trying to create. To create the budgets using a CSV: select ‘Budget Manager’ and then click the ‘Import’ button. You will see there is a CSV template that Xero provides so that you can make sure you have the correct format. Fill in the budget and then re-import into Xero.
Once you have created your budget you can Export it out to a CSV, Excel or Google Docs format to check and review.
To find out more information about Creating Budgets in Xero visit the Xero Business Help Centre.