The first step to starting the budget process is to review your current year financials. To do this, run a monthly P&L (profit and loss statement) of revenue and expenses for the current year (through whatever period you have closed – hopefully October). If you have a financial system set up, such as QuickBooks, Sage, Xero, Great Plains or another accounting system, this will be as simple as running a monthly P&L report and exporting to Excel. If you don’t have an accounting system set up, then take all of your revenue and expenses by month (from your bank statements) and schedule them out over the year, totaling by month.

Once you have your monthly P&L in Excel, review for trends. Is your business cyclical? Is your revenue higher in the summer? Or, maybe you have 3 months throughout the year that are always better than others. Do you have major expenses that hit in just one month or are they pretty consistent throughout the year?

As you are reviewing your monthly revenue and expenses, it’s a good time to review where you are spending your money and if there are any updates that you should make for the next year. Drill down into the expenses from each category to see what is included in each. Are there any recurring transactions that you are no longer using or that are charging incorrect amounts? Sometimes you have services that you signed up for at one point that you haven’t been using, but are still charging you a monthly fee. You may not notice it, as it may be a small amount each month, but it can add up over a year’s time. Now is a good time to cancel such charges. As you review, make sure all expenses are necessary. Update services, subscriptions, and fee levels.

As you’re reviewing your expenses to get ready to budget for the next year, it’s also a good time to review your chart of accounts. Are you using your financials to manage your business? Do your numbers help you to tell the story of your business? If not, it may be time to update your chart of accounts to help you in managing your operations. Clean up any old, duplicative, or unnecessary accounts. If you have added a new service offering in the last year, you may need to add a new revenue account for tracking. If you are wanting to manage your marketing campaigns in a different way or analyze how your labor force is doing, you may need to record expenses in some additional accounts so that you have better information to analyze. Add the accounts you think you need or want to track. Review to determine if your chart of accounts is consistent in format. Make any updates that you feel are needed to best manage your business.

Once you are comfortable with your current year financials, the monthly amounts from 2014, where your money went, and the accounts you want to track in 2015, set up your 2015 budget template in Excel. This should consist of a column for each month of the year, rows for all revenue, cost of goods sold, and expense accounts you want to track, and a final column showing the cumulative total for the year.

Tomorrow we’ll start the input.