Welcome back to our blog series on navigating Xero’s accounting software! In our previous post, we set up a custom zero homepage and explored the company file’s functionalities. Today, we’ll delve into the exciting process of creating a budget using Xero’s Trial Balance feature.
Why a Budget Matters: A budget is a crucial financial planning tool for any business. It allows you to forecast your income and expenses, enabling better decision-making and resource allocation. With a well-structured budget, you can compare your actual performance against projected figures, identify deviations, and make necessary adjustments to stay on track towards your financial goals.
Getting Started: To begin, we’ll assume that we have already entered two months’ worth of data (January and February) into Xero. Now, let’s imagine these two months serve as the foundation for building a budget for the entire year, with monthly breakdowns for more accurate monitoring and analysis.
Step 1: Exporting the Trial Balance The first step is to export the trial balance data into an Excel worksheet. To do this, follow these simple steps:
- Right-click on the tab at the top and duplicate it, so you have an original and an adjusted version.
- Navigate to the accounting dropdown and find the trial balance report. Set the date as of February 28, 2023.
- Click “Update” to generate the report.
- Remove any unnecessary comparison data from the report, leaving a clean trial balance.
- Export the clean trial balance to Excel by selecting “Export to Excel.”
Formatting the Budget Worksheet: Now that we have our trial balance data in Excel, let’s prepare the budget worksheet. We want to focus on the income statement, so we’ll remove unnecessary rows and format the sheet appropriately.
Step 2: Formatting the Budget Worksheet
- Delete all the rows above the “Sales” account, keeping only the accounts related to the income statement.
- Make the negative numbers (expenses) negative by copying them to a new range and using the Paste Special function with subtraction.
- Sum up the income and expenses to get the net income.
Step 3: Making Adjustments and Projections Since we have data for only two months, we can calculate the average monthly figures by dividing the totals by two. However, we should also consider making adjustments and projections based on our future expectations. For instance, if we anticipate an increase in sales or expenses due to market trends, growth plans, or other factors, we should adjust the monthly budget figures accordingly.
Conclusion: Congratulations! You’ve successfully prepared your budget worksheet using Xero’s Trial Balance feature. Remember, this is just the beginning of your budgeting journey. In the next blog post, we’ll continue adding months and making projections into the future, refining our budget to match real-world expectations. A well-thought-out budget will serve as your financial compass, guiding you towards your business goals and helping you achieve greater success.
Stay tuned for Part 2, where we’ll take our budget to the next level and explore strategies for accurate projections and performance tracking. Happy budgeting!