Budgets and Forecasts
All QuickBooks editions include the capability to create a budget. If you are running QuickBooks Premier or Enterprise, you can also create a forecast.
So what is the difference between a budget and a forecast? In my days of working for large corporations, the budget was set at the beginning of the year and didn't change. The forecast was year-to-date actuals and a projection of future performance that was revised monthly. However, in QuickBooks, the answer is not much. Forecasts are set up and behave exactly the same as Budgets, but are somewhat more limited.
Here are the differences:
You will find Budgets and Forecasts on the Company pull-down menu under Planning & Budgeting. The set up process begins with selecting the year and whether the Budget you are setting up is based on the Profit and Loss statement or the Balance Sheet. On Profit and Loss Budgets, you then have the option of selecting whether the budget is for your entire company, for a class, or for a specific customer:job. You can have one budget per year per company, one budget per year per class, and one budget per year per customer. So for 2011 you might have a budget for the company as a whole, and one for each of three classes. You cannot create a second "what if" budget without exporting to Excel. If you are running Premier, you might use a Forecast for that purpose.
The next step is to select whether to create your budget from scratch, entering the numbers manually or to let QuickBooks create a budget for you based on the previous year's actual data. When you click Finish, QuickBooks will create the budget and open it for editing. By default, QuickBooks creates a monthly budget, but if you want an annual budget just enter the total amount in the January column. For a quarterly budget, enter your amounts in January, April, July, and October. You can copy amounts across a row or adjust monthly amounts up or down by a flat amount or percentage.
You can also import a budget that you've created in a spreadsheet, but it needs to be an .iif file (Intuit Interchange Format) and map to your QuickBooks Chart of Account names exactly, so it's a bit tricky.
Once you have created your budget, use the Budget vs. Actual report, the Profit and Loss Budget Performance report, or the Budget vs. Actual graph to track your progress.
Sound simple? It is. The hard part is creating a meaningful budget based on past performance and your best guess of what will happen in the year to come. QuickBooks can help you with the past performance. Here are some of the management reports you may want to look at to help you build your budget. On most of them, you will need to change the date range to Last Fiscal Year.
- Profit & Loss Previous Year Comparison will give you two years of data
- Sales by Item Summary will help you forecast changes in sales income based on product mix
- Sales Graph will help you quickly identify seasonal trends
- Purchase by Item Summary provides quantities and total dollar amounts
- Item Profitability (under Jobs, Time & Mileage) gives you the actual cost and actual revenue by item
- Profit and Loss Standard modified to show % of Income when compared across multiple years will help you identify and forecast variable costs