Budgets: How they work for you
A high number of clients that we work with did not implement the use of budgets prior to our relationship. Those that did primarily only did it on an annual basis in regards to the overall company results. That is important, and we will discuss the benefits of that throughout this episode, but just as important, especially for companies in the contracting industry is the ability to create budgets in QuickBooks Online by individual job or class
Without even realizing it or necessarily in a formal fashion, many businesses already carry out the majority of the activities associated with budgeting, such as thinking about growth areas, competitors, cashflow and profit. The process does not have to difficult or time-consuming. QuickBooks Online has a budgeting feature built into the program that makes the process simple. You even have the option to import data from previous periods to use as a template moving forward.
The most important thing is that plans are made, they are accurate and realistic to your business or the job, and that the information is clearly communicated to everyone involved.
A few examples of the overall benefits of creating a budget (from and overall and per job basis):
- Manage your money and cash flow effectively
- When you are planning per job (or per month, quarter, year, etc.) it allows you be more effective when making cash flow projections and make more informed decisions regarding payments
- Allocate appropriate resources to jobs
- Labor schedule
- Management schedule
- Sub-contractor schedule
- Monitor performance
- Budget vs Actual reports
- % of job invoiced compared to % of budgeted COGS sold is always a good indicator of where the job SHOULD be
- Are you behind on billing?
- Was there a miscalculation in the original budget that should be revised?
- Meet your objectives
- In general, the use of detailed goal setting strategies has a profound impact on success
- Increase staff motivation
- Clear, understood objectives and goals help drive motivation
- When there is no clear path and no clearly defined objective the ability to differentiate between success and failure becomes blurred which can lead to poor moral and motivation
New small business owners may run their businesses in a relaxed way and may not see the need to budget. However, if you are planning for your business’ future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.