Episode 6: How to Create a Budget in QuickBooks

In this episode of QuickBooks Mastery for Small Business Success, father-daughter team Erica Northrup and Lee Davis walk listeners through the full process of creating a budget in QuickBooks Online. They explain why budgeting is essential for small business owners, how budgeting improves cash flow, and the biggest mistakes business owners make when trying to manage expenses without a plan.

Listeners learn how to use QuickBooks’ built-in budgeting tools, how to analyze Budget vs. Actual reports, and how budgeting creates confidence, clarity, and better decision-making throughout the year.

This episode provides simple, practical, actionable steps every business owner can follow — whether you’ve never created a budget before or you want to strengthen the structure you already have.

Key Takeaways

• A budget is a forward-looking plan that helps control expenses, assess profitability, and prepare for seasonal changes.
• QuickBooks Online offers built-in tools to create, edit, and track your budget with actual financial data.
• Monthly budgets provide far more clarity than annual-only budgets, especially for seasonal businesses.
• The Budget vs. Actual report helps identify overspending, revenue gaps, and opportunities to reallocate funds.
• Budgeting doesn’t need to be perfect — it simply needs to be active and reviewed regularly.

Questions to Reflect On

• Where is my money actually going each month?
• Which expenses consistently exceed expectations?
• What income patterns or seasonal trends should I prepare for?

Mentioned in This Episode

Free 3-Part Quick Start Guide to Getting Started with QuickBooks

Download at: www.leedavisandcompany.com

Send Us Your Questions:

support@leedavisandcompany.com

QuickBooks Online Budgeting Tool Overview – https://quickbooks.intuit.com

Timestamps

Chapters:

• 00:02 - Introduction to QuickBooks Mastery
• 00:54 - Creating a Budget: Essentials for Small Businesses
• 09:13 - Introduction to Budgeting with QuickBooks
• 14:04 - Analyzing Budget Reports
• 19:23 - Common Mistakes in Budgeting
• 23:35 - Budgeting Basics: Keeping Personal and Business Finances Separate

Call to Action

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Have a QuickBooks question? Email support@leedavisandcompany.com — your question may be featured in a future episode.

Welcome to QuickBooks mastery for small Business Success.

I'm Erica Northrup.

And I'm Lee Davis.

I handle the tech and he handles the numbers and together as a father daughter team, we bring decades of experience helping small to medium sized businesses thrive.

We know that as a business owner, your time is best spent mastering your craft and growing your business, not getting lost in QuickBooks.

Managing finances can be confusing and you don't have hours to waste sorting through spreadsheets or fixing bookkeeping mistakes.

That's where we come in, helping you streamline QuickBooks so you can focus on building your business.

Each week we break it all down into simple, actionable steps so you can focus on growing your business, not fixing your books.

Let's embark on this journey together.

Welcome back to QuickBooks Mastery for Small Business Success podcast episode number six how to Create a Budget in QuickBooks so Papa, what are your opening remarks on creating a budget?

While I would tell you that the budget process may not be the most interesting or popular item, it is, however, a must when businesses are planning.

The budget is a good and needed report when combined with the cash flow.

The budget report primarily uses the profit and loss to record the transactional work.

It doesn't necessarily negate your cash flow, so it's really a report and a snapshot to tell you how you're doing in the profit and loss realm.

So the budget report primarily uses the profit and loss.

It's a good tool for you to use an end project and you can bring it over from the historical work and you can edit it.

It's essentially a big excel sheet, really important for you to look at before you start creating your budget, to review your profit and loss report from the previous year and to see where you might want to make adjustments to it.

The profit and loss is really your basis for working on your budget.

Before you even start your budget, review your profit and loss right report and then go through that profit and loss report and say, do I have other income I want to project or are there some expenses that I want to review?

Being prepared will help you have a good projection in your budget report.

And really your budget report can be run in a matter of seconds.

Once it's accurate, then it will be a great tool for you to see how your business is doing.

Because this is important.

Because if you have a business, you're running a business, and you really feel like your money is just disappearing every month.

Getting back to the basics, sometimes I feel like we go to all these different solutions, all these different things to kind of do something that you really need to do that is actually very simple and maybe not very glamorous thing is actually creating a budget and sticking to a budget.

I mean, that might be the lifeline that your business needs right now in order to thrive in the future or even currently.

Getting back to figuring out what money am I spending, where am I spending it, Looking at the options that QuickBooks has, running those reports, looking at where is the cash flow, where is it going?

And then taking that information and really starting to lay the groundwork for a budget that is going to help you month after month after month to increase your bottom line, right, to make you essentially more money.

If you're not spending more than you're making, then your business is going to thrive.

A lot of businesses will say, just as you alluded to in the intro, where is my money?

And I don't understand why I can't pay myself more.

And the budget report would hone in on if you budgeted X amount for expense, but you're spending three times that, right?

Makes a huge difference.

Then you want to say, okay, that's one area you look at.

But the other area that you can quickly look at in conjunction with this budget report, if you are spending money on new equipment and assets, vehicles or areas where they don't show up in the expense, then you can quickly see, okay, you spent 30,000 more this year in new equipment.

Now, we don't necessarily include that in the budget, right, because that's not an expense, that's an asset.

So you have to use the report and you have to project to say, really in your cash flow.

This is where the cash flow comes into play, right?

Where you have to say, these two reports have to be worked together.

We talked about cash flow the last.

Time we've covered cash flow.

It's one of the whys.

Why you need a budget is to improve that cash flow.

What are some of the other reasons why you would want to have a budget?

One of the areas that you definitely need to incorporate into the budget is big line item for your equipment called your depreciation expense.

That's a non cash item, but it is nevertheless a budget item that should be reflected.

Because while you may not necessarily pay out cash, it does affect your profit and loss because you are taking depreciation and your equipment is depreciating.

Now you may accelerate your depreciation and that kind of overstates your profit and loss in some ways.

But nevertheless it is an expense that shows up on your tax return.

So depreciation is one area that you really do want to incorporate into your budget.

You want to keep track of those things.

You want to know, again, this is all about your cash flow, right?

The money coming in and the money going out.

You're spending money on equipment.

That's money that's going out.

Even though it might be an asset, it's still money that you're spending.

And it would be a way for you to look at your depreciation expense and, you know, take that into consideration with new equipment purchases.

Absolutely.

So again, it's a way to work around the fact that you don't necessarily have assets as expenses, but you can anticipate them using the account for depreciation expense.

Absolutely.

Okay, so depreciation expense control.

Another reason why you need a budget to improve your expense control, easier goal tracking.

So if you have goals for your business, if you're on a budget, that's going to make it easier to look at.

And you might be more in tune with this because you have some clients that do seasonal work in season.

So you know, when you budget, you can actually prep for those slow seasons.

Or if people are making hiring decisions right around, okay, are we going to hire for the summer seasonal work or, you know, all those different things, Having a budget is going to help you make those decisions.

Am I correct?

You're right.

You're spot on.

I think part of the issue is when you have seasonal type work and you have a tight employment situation like we have now, you want to be able to keep those employees.

So you really have to figure out, you know, how you will carry those employees through the slower season.

It costs you money to train an employee.

A trained employee is worth their weight in goals.

So figuring out how you can make that employee work year round for you.

And maybe you want to look at which employees you would really want to keep.

And that's where the budget would really help in terms of how much money is coming in, how much money is going to be paid out.

Most excellent.

I think the other area that you really want to consider in the whole budgeting, which is something you have to anticipate about how much cash is going to come in, because you have a lag, you have people, when you send out your invoicing, you have a lag.

So you want to figure that out and incorporate that into your actual budget that won't necessarily show up in the profit and loss that's going to show up when the income will come in.

Right.

Anticipating that you might bill one month and then by the Next month they've paid their bill.

That's correct.

That would make sense.

Yeah.

So there are just some tricks.

You can't just necessarily copy over your budget from last year and say, I'm all set.

You want to really go down and say, okay, I want to attack and figure out exactly what I think my income might look like in the budget.

That way, if you keep a worksheet on your budget, you can have a better idea, almost like an Excel format where you say, okay, here's what I would anticipate my income to look like.

Here's what I would think my receivables might look like in income through the months.

Well, this is a great segue into what QuickBooks has to offer for budgeting.

And they actually have a tool built into QuickBooks for budgeting.

They do.

And you can find that under QuickBooks Online, which really people are only using.

We're actually just talking about this right before we started recording that, you know, not many people are using the desktop version anymore.

So we're going to focus on the QuickBooks online version.

So in QBO, you go to the gear icon and I'll put some screenshots to this so you can check it out.

But you go to the little gear icon budgeting, and then click Add Budget.

And before also they, they've added another tool in the budgeting process that you can run a forecast.

So if you're beginning to think about before you set up the budget, go to run a forecast that will really look at your profit and loss.

Right.

And that's going to help you determine what your income is going to look like, what's going to come in and out over the next year.

That's correct.

So that's a good starting place.

So you can run that forecast.

It will help you to prepare the budget.

Now, what do you think?

Monthly versus quarterly versus annual?

What are your takes there?

Is that important to do a monthly budget, quarterly budget, and annual budget, or is that overkill?

Yeah, you probably should have a monthly budget.

You shouldn't just have an annual budget because you're not going to be able to target where your discrepancies are if you don't have a monthly budget.

So not overkill at all.

Go overkill.

No.

Think about a monthly budget.

Well, we have a monthly budget.

I'm a bonus mom to four.

We have a family of six.

We got two dogs.

We shop at Costco.

I have a budget for our food budget so that when I'm shopping week to week, we're not exceeding Past what we're making.

Yeah.

So a monthly budget is useful, but you can run your budget reports out from the beginning of January to the end of March.

And if you do that, you're going to see a better picture rather than just running a yearly budget and see where am I?

Because the clients who are seasonal definitely don't want to have an annual budget.

They may, that may be easier and you might want to just think about dividing that by 12.

But that's really not the way your budgeting is going to work because every.

Month is going to be slightly different.

Every business is seasonal to some extent, so every month has different needs.

And so maybe you have an overall budget that you have kind of month to month, but then every month you have a slightly different budget based on those needs for that month.

We talked about whether you would do a monthly or an annual budget quarterly.

But when you're going in to set up the budget, it will ask you whether you want a profit and loss or a balance sheet budget.

Okay, so basically you want a profit and loss budget.

So that's really going to be important.

And if you have a budget already in the system, it's going to take you to the next fiscal year or calendar year, whichever one you happen to be set up on.

And you want the budget income based on a consolidated or subdivided by the various income streams.

If you probably have multiple income streams, then you definitely will want to have it subdivided.

If you want to pre fill all the data, you can do that.

Or if you want to start from scratch based on your profit and loss, you can do that as well.

But pre filling it makes sense because you can always go back and edit it.

And more than once have I found when I've created the budget that I've deleted it and started over.

So yes, you can use the historical data or you can just start with a zero based budgeting.

Just start from scratch and leave space.

For seasonal or buffer in expenses.

I think that that's a really key.

Element to just like we think leaving space in your budget for those seasons is massive.

Yeah, you have to have an expense associated with a budget item that's based on the chart of accounts.

So if you want to use an account that you don't necessarily think that you might have expenses on, you can just put that expense in and put some additional amount of money that you'd like to consider for a buffer.

Now maybe you won't spend that, but that's fine.

It's in there for your budget.

So just like any other report or any other workaround in QuickBooks, you can come up with an ability to add some additional expenses or you can perhaps again look at saying, no, I'm not going to, because it's an Excel spreadsheet, so you can go back and put zero in.

Even if you pre fill, you can always edit it.

That's great.

And then it's a matter of saving and naming your budget.

Right.

So now that we have our budget created, how do we use that budget month to month?

What would you say are some of the key points that you need to be looking at when you're running this budget and working with this budget every month?

One of the pieces that you are going to want to consider is going to the report section and saying, okay, I want to run my reports.

There is in the business overview, you can run a budget overview report.

Okay.

You can also run a budget versus actual.

Okay, I feel like those would be helpful looking at what you set your goal to be and what you actually ended up spending and taking in.

Yeah.

So your budget overview is simply going to be exactly that.

Your budget versus your expenses.

Okay.

So you can see how well you've done.

So it's just exactly that.

It's your budget overview of the budget you set up.

So you can decide you can run it for three months or you can run it for six months.

I suggest you do three months or do one month and play with it.

You can run all the dates or you can run it for a week if you wanted to.

There are just all kinds of choices that you can consider.

This report, the other report that you definitely want to keeping your favorites, is your budget versus actual.

So you definitely want to run that budget versus actual.

And because that's a pretty lengthy report, you want to choose for a month or three months and then kind of work it from there.

Seems like a great use of QuickBooks utilizing the data that you're importing.

Yeah.

Through the month.

And then also then looking at that budget that you created through QuickBooks.

I think that's brilliant.

That's a great snapshot of, of like, okay, are we actually hitting the mark?

Are we actually doing what we said we were going to do?

Yeah.

So good.

Okay.

So what to look for?

So you've run the budgets, you've run these reports.

Now what are we looking for when we're looking at these reports?

Well, you want to be able to customize it to say, do I want to run the report to see as a percentage whether I'm over or under.

You can run it Based on cash or accrual.

Now, we've talked about cash and accrual before, but just a quick reminder about cash is how much cash came in the door versus how much did I invoice for sales, for example?

Because you might want to run it both ways.

If I were to collect all the money that I had invoiced and if I have outstanding bills, what's my snapshot with my business?

On the accrual basis?

Absolutely.

And because I've got bills I haven't paid yet and I've got receivables I haven't collected.

So you may want to just look at it from that perspective.

That's a great perspective.

Love that.

And if you decided you wanted to run it on a cash basis, fine.

Just how much cash in, how much cash out?

Doesn't it take into consideration accounts payable or accounts receivable?

How's my snapshot on just my cash business?

And looking at where am I overspending?

Yeah.

Looking at where those revenue gaps are, you can probably also look at have people paid.

Is that something that you can look at?

You know, have you actually received that money that you billed a month ago, two months ago, have you actually received that?

I mean, that's one really good way to consider on an accrual basis.

How am I doing?

Yeah.

And you can then say, well, do I want to have it shown by month or do I want to show it by quarter?

And then do I want to see the amount in a dollar amount that's representing over the budget or a percentage?

If I'm looking at a strict dollar amount, I can easily see, oh, I'm 5,000 over here.

People tend to work better with dollars, I think.

Yeah.

Not percentages.

Yeah.

As opposed to a percentage.

Let's get to the hard facts.

Let's get to the bottom line.

Absolutely.

Those are the major things that I would say.

Filter the report out and it can be useful to work with.

And then the last tip that I would probably add is where to cut back or reallocate funds.

Yes.

So if you realize, okay, wow, we're really overspending over there, but over here we would make more money if we took some of those funds and placed them over here.

That's correct.

A nice thing about the budget is you can go in and say, okay, I'm doing really well here, but it looks like I've got additional expenses here.

And so that you can make that report useful.

And then I believe you can actually set a recurring monthly reminder to review.

That report of Course, you can add that report into your monthly.

Just like your financials, your profit loss, you add that to the standard reports that get reviewed and it means you don't have to run it every month.

Right.

It will do it for you automatically.

Great.

We're definitely going to be getting to automation and reports because I feel like that is something that just keeps coming up episode after episode.

We've touched on a little bit here and there.

Awesome.

Okay, so let's turn our attention to talking about some common mistakes to avoid when thinking about budgeting or creating the budget or working with the budget in QuickBooks.

What would you say are some of those mistakes that we've seen people make that we can help our listeners not make in the future when they are doing a budget?

Keep your budget worksheets so you understand when you put the budget together so you don't have to say, oh yeah, I anticipated that.

So keep your budget worksheets.

Because many people don't, they create the budget and then they treat it like cash flow too.

Yeah, somebody said it was a good idea of a budget.

So I decided to have a budget and I don't use it.

I don't actually use it.

I set a budget but I don't actually use the budget.

Right.

Huge mistake.

Yeah.

Create your budget but then look at it every month.

Look at those reports that QuickBooks is going to run for you.

You don't actually have to run them.

You can have it automated for you.

And then look at those.

Love that.

And then drill down and say, oh, you know what, I need to look at this expense.

So do something very practical with it.

Make it something that you can really see.

Oh yeah, I save money on my whatever bill.

Maybe it's my insurance is coming up, you know, maybe it's my workers comp I need to look at to see if it's being calculated correctly.

Whatever expense appears to be over or under budget or income that might not be meeting expectations, you know, you've worked on it and you've uncovered a problem.

So actually I think it's a good call out making sure that you put things like taxes and those kind of line items into your budget.

Right.

You're really maybe focused on the day to day, month to month expenses that you have.

But there's also those quarterly expenses and yearly expenses that you have maybe once a year.

So budgeting those in again, that's where every month is going to look maybe a little different or if it's a big expense, maybe you know, you have to pay $10,000 in taxes, whatever it might be, rather than saving that all for the month before that's due, maybe it's every month there's a little line item for taxes, $1,000, that you stuff into an account that then when it comes due to pay those taxes, there you have the ten grand.

It does not hurt quite as much as if you had to come up with 10 grand 30 days before it's due.

That's right.

Budgeting for taxes or budgeting for big expenses.

Some of the expenses are like workers compared to.

Some pay them out monthly, some pay them out quarterly.

And so really understanding in the budget how you budget for those what you might call irregular expenses and figuring out whether or not you would save money if you budgeted for your insurance for that annual payment versus paying it monthly and paying interest on it.

And the other thing that you may want to budget is some people fund a IRA or a 401k.

So you want to budget that monthly so that when you're ready, you've got the money to take care of that big expense.

One last sort of tip.

I kind of came up with something that a mistake that people make is they don't actually separate their personal and their business budgets and they lump everything in together.

That's right.

You should not be making the Costco trip along with purchasing your website or other expenses you might have.

That's right.

Yes.

You shouldn't be budgeting for your personal expenses.

You should keep your business budgeting to business expenses.

It comes down to your spending habit.

Right.

I used to have a client that they were always concerned about the fact that they didn't have the money to pay the owner what they thought they should make.

And when I looked at their budgeting, they paid a lot of personal expenses out of their business.

And so we decided to sit down with them and create a personal budget.

Right.

Because budgets are great to have, whether it's your personal life or your business life.

I mean, they're just really good to have.

But keep your business, your business, keep your personal.

Keep them separate.

Yes.

And the key to that is to have a personal checking account use and a business checking account.

We've talked about this on other episodes.

But, you know, having a credit card that's solely for your business and having a credit card that's solely for your personal experience.

That's correct.

Because when you start mixing everything in QuickBooks, it just gets a little haywire.

Absolutely.

Well, those are some great things to avoid.

Now, let's just wrap it up.

So I think Something that I've gleaned from just our episode today is kind of looking at budgeting.

Doesn't have to be perfect.

You don't have to get every little line item on there.

If you've never budgeted before, you just gotta start and utilizing the tools that are in QuickBooks because it has great tools that can make this easier for you and just dive in.

Right.

Even if you start small, just start somewhere.

Yeah.

And it's a little bit like going to the dentist.

Oh, just do it.

Wash your teeth.

Brush regularly.

Your future self will thank you.

That's right.

So don't avoid it.

Don't avoid the budget.

And while it doesn't have to be perfect, it just has to be something that is active.

If you realize you get results from it, then that just encourages you all the more.

Right.

To have a good budget.

Yeah.

So good.

Well, guys, thank you for tuning in.

We want to know if this episode helps you to take those first steps towards creating a budget and having confidence with creating a budget.

We want to know.

Let us know.

Leave us a review.

And if you have any questions about how to structure your budget for your business, send them our way@supporteadavisandcompany.com and we look forward to answering those questions in future episodes.

Have a great day.

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