Budgeting on Xero
Budgeting maps the pathway to your dreams! And it’s so easy to do…
Imagine owning a Ferrari and only ever driving at 30mph or winning the lottery and continuing to live in your two-bedroom semi in a rundown part of town. You would be seriously wasting a life-changing resource that is in the palm of your hands, wouldn’t you?
It amazes me that so many Xero users don’t take advantage of the easy-to-use, intuitive and powerful budgeting tools that are freely available to them. And yet, from an accounting point of view, having and working towards a realistic budget is one of the smartest and most effective ways of achieving your goals.
Why have a budget?
I’ve lost count of how many times I’ve been asked by business owners why a budget matters. I always answer this question with another one: Why do you run a business? After a moment’s thought, or a few minutes of talking around the houses and the occasional altruistic distraction, they arrive at the truth. 95% of the time, a business owner’s primary reason for being in business is to create an income to support their personal lifestyle ambitions.
There are very few people in the world today who could genuinely say that they go to work purely for the fun of it – to the point that they would go to the office, even if they were not being paid.
What is a business budget?
So, the starting point of any business budget should be determining how it can work towards achieving the business owner’s personal goals. The two are intrinsically linked and one supports the other unequivocally. For example, if you need £50,000pa to meet your lifestyle ambitions then your business needs to generate £60,000 of profit (approximately: to allow for tax, etc).
Other considerations are the company’s overheads and any direct costs. The last thing that you need to put into the budget is the turnover. This will give you the amount that you need to hit each month – just to break even.
The harsh reality, however, is that breaking even (as described above) is simply meeting the needs of your personal lifestyle goals. To have a business that is actually growing and giving you and your employees the opportunity to reach beyond their current state – you need to generate more.
And it is only by having a strategic business budget that you can identify what those targets are – and in doing so significantly increase the chances of reaching them.
Creating a budget in Xero is so easy.
Back to my original point. Having now clarified just how important it is to have a business budget, so that you can reach your own personal goals, why not use the power of Xero to create yours?
It really is so easy, if you are a Xero user, that it seems like complete business self-sabotage not to use the tools available to you. For an overview look at the walkthrough here: https://www.meadesgroup.com/xero-resources/create-budgets-using-budget-manager-in-xero/
If you would like to talk through the ideas behind having a budget, better understand the value of personal goals or get a little more hands-on help with Xero’s budgeting tools. Please get in touch with one of the team.