One of one most powerful planning tools your bookkeeper can help you with is a budget.
If you are not getting and reviewing a budget with your bookkeeper, it’s time for a conversation (or a new bookkeeper).
A budget is your financial plan you create with your bookkeeping software (I recommend Quickbooks Online Plus) to meet your goals. A budget also helps you track how well you are staying on course to meet those goals.
What is a Budget and How is it Different than Job Costing?
Maybe your bookkeeper already does job costing. Why would you also need a budget? While job costing is important for knowing how profitable a specific job is, job costing does not give you picture of how well the business is doing overall. Job costing does not consider the overhead costs in your business.
Overhead costs are all the costs not associated with a specific job. These costs could include owner salaries, advertising costs, accounting fees, vehicle expense, insurance premiums, office supplies, travel expenses. You might think your overhead is not that much until you start adding up all the costs.
A budget is basically a forecast of your overhead costs, job income, and job costs for a specific period of time (usually a year). Once you create your budget, you should review your actual income and expenses versus the budgeted income and expenses to see if you are on track.
Why Should I Use a Budget?
1. Create more accurate job estimates. Creating a budget allows you to examine what your costs should be. Actually knowing your overhead costs will help you determine your markup rate on your estimates to ensure you are actually profitable.
2. Make more money. As the saying goes, “what is not tracked, does not not improve”. In this case, the opposite holds true. Once you start actively tracking and reviewing your costs, you will be amazed the savings you will find.
3. Make business decisions faster. Once you know exactly where your income and expenses stand, you will be able to make better, faster decisions.
How Can I Create a Budget?
Step 1: Get a solid bookkeeping software, like Quickbooks Online Plus (or just get a great bookkeeper).
Step 2: Determine the cost of overhead expenditures by researching your historic expenses.
Step 3: Make forecasts of expenditures and income. Input this data into your bookkeeping software.
Step 4: Review, at least quarterly, how your actual income and expenses are doing versus what you budgeted. This process allows you to evaluate your performance and where your business can improve. This is the most important step. Don’t go through the work of creating a budget, and then not actually use it.
If you want more bookkeeping and financial tips, get your free instant access to my free report for painting contractors.
About the Author
Daniel Honan is a bookkeeper and tax accountant who is also a former painting business owner and military officer. With his painting and accounting experience, he is uniquely positioned to help painting contractors save time, money, and resources.