Top-Line Budgeting and QuickBooks
Before you can create and use a budget in QuickBooks, you need to understand something about budgeting. 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. 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:
Top-line budgeting is easy. This is something big in its favor. Other budgeting techniques are often much more work.
Top-line budgeting is based on reality. The numbers from last year or last month are real. This fact is a unique benefit to top-line budgeting that other budgeting tactics don’t offer. If you know, for example, that last month you spent $2,000 on rent, the reality of that true, actual number is a very useful starting point for thinking about what you’ll spend this month.
Top-line budgeting, however, possesses a well-known weakness: It tends to perpetuate previous bad budgeting decisions. For example, if someone long ago decided to spend $10,000 on an advertisement in some special industry magazine, top-line budgeting may continue to budget that $10,000 annual expense even though it no longer makes sense or never made sense.