How to use Xero Budget Manager to plan for the future

Why are my clients ecstatic when I talk about Xero Budget Manager?

Budget Manager

This is why:

Your average accountant is a ‘historian’; they write up what’s happened in the past and provide reports on that information far too late. So generally, your accounts probably get to you between eight to nine months after your year-end which means the information is so far out of date it’s ridiculous.

When you use a tool like the Budget Manager in Xero, it gives you the opportunity to focus on the things that you can actually change in your business. It puts the focus on where your business is going – not where it’s been.

I am yet to find anybody that can change the past; if I find someone, we’ll make an awful lot of money but that’s beside the point…

Knowing whether your business is on track to perform for the year ahead is a much more powerful conversation. It gives you the opportunity to do something about it.

There have been numerous times in my career that I’ve heard a business owner say: “Well if I’d known that was going to happen, I’d have done something about it!” Well, using Budget Manager is a way of predicting potential issues, and saying there you go – it’s happening now, deal with it now, instead of looking back after the event and potentially losing a lot of money because you didn’t pick up the problem earlier.

How can you budget for the unknown?

Here’s a scenario to put this into context; let’s say that your year-end is March. In April every year, we set you a budget. That budget won’t be ‘War and Peace’.

Your bookkeeper might say:

“I don’t know if we’re going to spend as much on materials as we did last year. And I don’t know how much we’re going to spend on clothing.” 

It doesn’t matter. If you don’t know where to start, just use last year’s figures and put them in your budget for next year. This will give you immediate visibility of whether your costs are increasing or decreasing, and if your spending is in line with your expectations. And how about your revenue? Is that more or less than you expected? Does your projected profit give you the profit and loss that you need to survive?

If it does – fantastic. If it exceeds what the business needs to survive, then we can start to talk about how much money you can take out of the company. If the company is going to perform better, what could you do with those funds? Could you re-invest in the business, buy a new piece of equipment, or invest in a marketing campaign to generate more leads and grow the company?

If it’s the other way around and you’re not going to perform – what are you going to do? How will you bring in more work? You might need to look at ways to cut costs or streamline your systems. You’ll now be making decisions on a planning basis that keeps you looking forward rather than fire-fighting.

Again, if the company’s growing, will you need to hire people now, or make plans to hire in six month’s time? This is a more effective recruitment strategy than finding yourself overrun with work and needing extra support two months ago. You’ll be able to keep your attention firmly on running the business, rather than stepping into the breach to cover departments that are short-staffed.

Using Budget Manager changes the entire dynamic of how you run your business.

You start looking forward instead of listening to the accountant that’s only telling you about what happened in the past. You’ll have better more effective conversations about your finances – because it’s all about the FUTURE.

Ready to make better business decisions with Xero Budget Manager?

Book a free consultation here.