3 Clever Budgeting Tricks to Use with QuickBooks 2014
QuickBooks 2014 provides some great tools for creating a roadmap, or budget, for your business. This process gets even easier and produces better results, though, if you keep three budgeting tricks in mind.
And, fortunately, none of these three tactics is complicated. You probably know of and understand at least two of them already.
A top-line budget is the simplest budget technique available. A top-line budget takes last year’s numbers or last month’s numbers and uses them for this year’s budget. Of course, if inflation has occurred, a top-line budget may inflate last year’s or last month’s numbers by using an inflation factor. Or, conversely, if the business has shrunk a bit or fallen on hard times, the previous year’s or month’s numbers may be decreased by some amount.
Although top-line budgeting often receives a bad rap from people who don’t like the way it perpetuates the past, top-line budgeting has at least a couple of arguments in its favor: It’s easy. It’s based on reality.
Zero-based budgeting is the opposite of top-line budgeting. A zero-based budget works from the bottom up. A zero-based budget starts with individual revenue, expense, asset, liability, and owner’s equity accounts. It examines a specific account — postage expense, for example — and then tries to apply common sense and logic for coming up with a good postage expense budget amount. For example, the budgeter may guess that the firm will send out 1,000 letters over the year and that the average postage per letter will equal $0.50. In this case, the zero-based budgeting approach determines that postage expense for the coming year will probably equal $500. The zero-based budgeter calculates this amount by taking 1,000 letters and multiplying this amount by $0.50 postage cost per letter.
The advantage of zero-based budgeting is that it tends to fix poorly figured, previously budgeted amounts. It doesn’t simply perpetuate bad budgeting decisions of the past. New budgeted amounts are based on the application of common sense and simple arithmetic; the combination of these two items often produces pretty good numbers. That’s really cool.
One very powerful but unfortunately infrequently used technique is benchmarking. Benchmarking compares your actual or your preliminary budgeted numbers with the same numbers of similar-size businesses in your industry. For example, CPA firms spend money on a tax library. Annual fees for a tax library can run from as little as $100 or $200 a year to roughly $30,000 a year. (These amounts are fees for a sole proprietor, by the way.) How do you know what number is an appropriate budgeted amount? Well, if you know what other CPA firms or other sole-proprietor CPAs are spending on their tax libraries, that information can probably help you budget what you should or can spend. The challenge, of course, is getting that comparable information.
Fortunately, getting comparable information is easier than most people realize. You can usually get information about the financial statistics of comparable firms from industry groups and from federal and state government websites.