Budgeting is easy with Xero

7 December 2018

Pip's tip of the week - Xero internal budgeting feature is fit for purpose for annual budgets and is free!

We have an increasing number of clients moving away from traditional bookkeeping and onto Xero Cloud Accounting, many of which have different needs for what they would like to use the bookkeeping system for. 

I recently had a client ask me how they can use Xero to assist their budgeting requirements. This can be achieved in two ways, either by using one of the budgeting apps available or Xero’s very own built-in basic budgeting feature. This feature is already included in a standard Xero subscription and therefore is of no additional cost.

How to use Xero Budgeting

First, you must create an “overall” budget which covers the whole business. 

To do this go to: Accounting - Reports - Budget Manager

You can select the budget start date and the number of months you which to enter the budget for. Budgets must be entered in monthly units, not annually or weekly. You can either enter the figures directly into Xero OR you can export the template into excel, fill in using formula and then re-import back into Xero. This is a great tool for us to be able to export and send to clients to complete and then re-import back into Xero.

Once you have imported an overall budget you can then create additional budgets. These can be useful if you are using the "tracking" feature and would like to have a different budget for each element of your business, combining to make the overall budget. Alternatively, you may have a "Plan B" budget if sales are down, or adverse situation is experienced. 

Xero Budget Manager

How to create additional budgets

To enter an additional budget the process is repeated. Ensure each budget is given an appropriate title in order to identify it. The overall budget does not sum the individual budgets together.

Once a budget has been entered the current transactions at any point in time can be reported against a chosen budget. To go this go to: Accounting - Reports - Budget Variance. Click "compare periods" and select the date range and period you are interested in. Then select which budget you want to compare against.

This example above shows the income and expenses for the 6 month period ending December 2018 against the budgeted figures for this shooting business. Budget movement is shown both as a monetary value and a percentage by the 2 columns on the right-hand side. These indicate sales are down for the period, shown in red as a potential cause for concern, however, expenses are also lower than expected, shown in green as a positive for the business.

If you are using tracking you can amend the actual figures to only include particular tracking categories.  By clicking "More options" you can select any particular tracking item and then amend the budget to be a relevant budget for that tracking category. 

The actual figures are current and include all transactions entered into Xero, therefore allowing real-time comparison of your business against the budgeted figures for any chosen period.

New budgets can be uploaded as and when required, existing ones edited and old ones deleted. Xero Budget Variance

If you would like more information on Xero and how to use it for Budgets please contact Pip Cusack on pcusack@ellacotts.co.uk or 01295 250401.