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Simple Steps You Need to Follow to Create Your Budget in Just One Hour


Simple Steps You Need to Follow to Create Your Budget in Just One Hour

As we enter 2016, there are a few things that every small business owner should be thinking about financially: preparing and sending 2015 W-2s and 1099s, reviewing 2015 financials to begin estimating taxes to pay on net income, and getting employees’ 2016 payroll tax form in order are just a few. But above everything else, we need to finalize our 2015 plans and goals and see how they will translate into net profit.  To do that, we need a budget. With some QuickBooks reports, a spreadsheet, and vision, you can cross budgeting off your list in only an hour.  Here’s how.

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Simple Steps You Need to Follow to Create Your Budget in Just One Hour

First, before you do anything else, plan what you want to do this year.  Your change in activities will change your financials, so take a few minutes to think about what you will do, how much you’ll earn from it, and changes in your spending to do it.  What new products or services will you offer, and what additional hiring, equipment, supplies, and services will you need in order to make it happen?

Once you’ve done that, the next step is to start with your 2015 Profit and Loss report and exporting it to Excel.  Unless your business is drastically changing, the format of your financials will look the same as they did in 2015, so why not make it easy and use that as a template?  Simply go into QuickBooks, up to the report menu, select the Profit & Loss Standard report, and export it to Excel.  Once it is in Excel, copy the column with the numbers into the column next to it, then label the column header to “2016 Budget.”

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The third step is to modify the 2016 budget column to reflect your 2016 plan.  Here are some ways to make this process easier:

  • For income, create a new tab and make a worksheet to estimate your sales. For example, if you are a service business with a few clients, list the clients and figure out how much you’ll be working with them for the year.  If you have a wholesale or retail business, look at your Sales by Item report to see how much product moved in 2015, and apply your historical growth rate to it—if you’ve grown 10% each year for the last three years, then it’s probably safe to assume the same for this year.  Or perhaps, if you have many products, look at sales by product line, and apply your growth rate there.  Ultimately the key is to have a rational basis for how much you are going to make, regardless of whether you look at your business as customer or product centric.  Once you have that revenue number, you can enter it or link it to the main budget.
  • The way you calculate your cost of goods or services is going to depend on whether your expenses are variable or fixed.
    • If you have variable cost of goods where the cost of your sales are in direct relation to what you sell (retailers, restaurants, service firms that rebill for contract labor, for example), then you should be able to easily tell what percentage of your income is spent on cost of goods, and you can set up a formula that calculates the cost of goods for you. For example, if your pricing structure is four times what you pay for your item, then your cost of goods formula would be Revenue * 25%.
    • If, on the other hand, your costs are pretty stable and you have fixed cost of goods (such as a service firm where income-generating staff are on fixed payroll or manufacturing with fixed factory costs or equipment purchases or leasing), then you should make a list what those costs are in a separate spreadsheet tab.
  • For payroll, we typically like to make a list of employees, what their salaries will be for the year, add 10% to conservatively account for the additional payroll tax expense (including Social Security, Medicare, and unemployment), and calculate the cost of employee benefits. Once you have the total payroll number, go back to your main spreadsheet and plug that in.
  • For all of your other expenses—overhead, (rent, utilities, insurance, travel, and meals), marketing (web site, advertising, branding), business reinvestment (new equipment, continuing education, research and development)—you can simply adjust last year’s numbers. Discontinuing a service?  Reduce the amount for 2016.  Spending more on a category?  Increase it accordingly.
  • Last, most taxes are based on net income, but there are a few that are not. When you complete your budget, send a copy to your tax preparer and ask them for estimated taxes for the year.

Now look at the budgeted net income.  Is there profit?  Is there enough room for contingency in case sales aren’t as well as projected?  Is it guardedly optimistic about your growth plans?  If your bottom line doesn’t look good, then you’ll need to revisit your annual plan to see what changes you need to make and then change your financial projections accordingly.  Once you are satisfied that your 2016 plan is financially feasible, save the budget, and give yourself a break.  Then, come back and revisit it for a final review and modify it as needed.

When you are satisfied that you have a reasonably accurate forecast for 2016, be sure to enter it into QuickBooks, and then make it a habit to review the report monthly to make sure you are staying on course.  By doing this, you’ll be able to review your Profit & Loss Budget Performance report each month to make sure that you are sticking to your plan for the year.  That’s the way you can hustle in 2016.


In this special Smart Hustle bonus video, Jonathan walks you through the actual steps of creating your 2015 budget in just one hour! Enjoy!!

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