How to create a small business budget on Xero

When you’re running a small business, you have to take on multiple roles and one of those is bookkeeper. You’ll be aware of the need for your business to have a budget, but may be less sure about how to structure it.

small business budget XeroFear not, it’s not complicated and with the help of an easy to use a cloud accounting package like Xero, you can get the job done pretty quickly. Below are the three standard items you need to set up in your budget. Then we’ll take a look at how to get started setting these up in Xero.

The profit and loss report

Your profit and loss sheet is the key report for managing any business. It tells you how much is coming in – revenue – and how much is going out – expenses. Once you have the basics set up, you can add in items such as depreciation. That’s an amount to cover the fact that equipment you buy loses value the longer you have it.

Balance sheet

Many small businesses rely on the accountant to produce the balance sheet, but with friendly accounting software, you can produce it yourself at the touch of a button.

The balance sheet lists the assets of the business, including equipment, property, cash in the bank and money owed to you by customers. The liabilities of the business are also listed. These will be any bills you have yet to pay, tax payments that will come due and any debts the business has.

The “bottom line” on the balance sheet is simply a statement of the assets of the business minus its liabilities.

Trial balance

Some people give up at this stage, feeling they have entered the mystifying world of bookkeeping jargon. But as we’ve seen, the Profit and Loss and the Balance Sheet are actually quite simple controls. You may be running separate spreadsheets or ledgers for different activities such as a sales ledger and an expense account. With information sitting in different places, it’s hard to get an overall picture of the business. The trial balance takes all the credits and debits from all the ledgers and compiles them into one comprehensive picture of the state of the business.

Creating your budget in Xero

We’re using Xero as our example here because it’s probably the easiest to use accounting package and has comprehensive facilities, so it will be suitable for long-term use as your business grows.

It’s also widely used by small businesses and last year won the Accountancy Age award for Software Product of the Year. The judges commented that it was rapidly becoming the de facto leader in the online accountancy market. The Xero Budget Manager function should make short work of setting up the budget for your business.

Start by setting up the overall budget

In the “Reports” section of Xero, you’ll find you can select various budgets from a dropdown list. Do the following:

  1. Select “Overall Budget”.
  2. Enter income,
  3. Enter cost of sales you’ve made (this gives you the gross profit).
  4. Enter expenses and overheads (this will give you the net profit figure).
  5. Select the dates for the budget and comparison periods.

There’s an easy import facility for your data – just use the Xero template and it will be read in and used to populate the profit and loss. From the overall budget, you can easily set up the reports such as the profit and loss and balance sheet and carry out a trial balance.

You can do a lot with Xero but it’s designed so that you can start with the essentials and build custom reports from there. We haven’t got space to give you a detailed tutorial, but the example above demonstrates how straightforward it is. There are also a lot of very clear videos online, so take a look. One of the great features is the ability to build your own dashboard so that you can get an immediate snapshot of what’s going on with your business.

What’s more, snapshots of reports such as the Profit and Loss can be run on your mobile. This makes it easy to stay on top of the business while travelling or seeing customers, without having to lug a laptop around.