4 min read

Why do you need to create a budget?

There are two main reasons why you may want to create budgets. You want a trip planner for your business. You will use this on a day-to-day basis to run your business and make decisions. The second reason is if you are seeking outside finance for your business from a bank, investor, or other lender. They will require you to submit your business plan along with projected financials.

Time for action – creating a budget for your business

You are going to create a budget for the next three months to serve as a guide for your operations. Typically, investors, banks and other lenders will need financial projections for a longer period. As a minimum they will need one year projections which may go up to 3 to 5 years in many cases.

  1. From the menu select Actions Budget | New Budget|. A new budget screen will open.
  2. Click on the Options toolbar button. The Budget Options dialog will open. For this tutorial, we are going to select a beginning date of three months back. This is only for the purposes of this tutorial and will allow us to quickly run Budget vs. Actual reports.
  3. In the Budget Period pane, change the beginning on date to a date three months ago. Change the Number of Periods to 3. Type in the Budget Name MACS Jun-Aug Budget as shown in the following screenshot and click on OK.

    Creating a Budget for your Business with Gnucash

  4. The screen will show a list of accounts with a column for each month. The date shown in the title of each column is the beginning of that period.
  5. Now enter the values by simply clicking on the cell and entering the amount as shown in the following screenshot.

    Creating a Budget for your Business with Gnucash

     

    Using the Tab key while entering budget amounts
    Don’t use the Tab key. The value entered in the previous field seems to vanish into thin air if you use the Tab key. Instead use the Enter key and the mouse.

  6. When you are done entering all the values, don’t forget to save changes.
  7. Now that the budget has been created, you are ready to run the reports. From the menu select Reports Budget | Budget Report|.
  8. In the Options dialog select all the Income and Expenses accounts in the Accounts tab. Check Show Difference in the Display tab and click on OK to see the report as shown in the following screenshot:

    Creating a Budget for your Business with Gnucash

We are going to create the Cash Flow Budget in a spreadsheet. Go ahead and copy the data from the preceding report to the spreadsheet of your choice. Put in additional rows and formulas along the lines shown below. We are showing the cashflow for a six month period in the following screenshot to make it easier for you to see some of the trends and business challenges more clearly:

Creating a Budget for your Business with Gnucash

What just happened?

What if you had tomorrow’s news… TODAY? His name is Gary Hobson. He gets tomorrow’s newspaper today. He doesn’t know how. He doesn’t know why. All he knows is when the early edition hits his doorstep, he has twenty-four hours to set things right. You may recall that in the TV series early edition, Kyle Chandler who plays the role of Gary Hobson uses this knowledge to prevent terrible events each day.

What if we told you that you can get tomorrow’s news for your business today? You can prevent terrible events from happening to your business. You can get tomorrow’s sales, expenses, and cash flow in the form of a budget. Mistakes are far less costly when made on paper than with actual dollars.

Sometimes budgets are referred to as projections. For example, banks, investors, and lenders will ask for a business plan with profit and loss, balance sheet, and cash flow projections. Other times, these are called forecasts, especially when referring to sales forecasts. Regardless of whether we call them budgets, projections or forecasts, we are referring to the future. Unlike the rest of bookkeeping, which is concerned with the past, budgeting is one area, which tries to look in the crystal ball, and attempts to see what the future might look like, or what you are committing to make it look like.

If you are running a business without a budget, I am sure there are times when the thought flashes through your mind, “I wish I had known that earlier.” Your budget is the crystal ball that enables you to see the future, and do something about it. Generally, when you complete a budget, you will have a number of revelations. For example, you might find that your cash flow is going into negative territory in the third month. The budget allows you to perceive problems before they occur and alter your plans to prevent those problems.


Subscribe to the weekly Packt Hub newsletter. We'll send you this year's Skill Up Developer Skills Report.

* indicates required

LEAVE A REPLY

Please enter your comment!
Please enter your name here