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To Balance or Not To Balance

Guest post by licensed Right-Brain Business Plan® Facilitator Cass Mullane

I recently wrapped up my “Build Your Budget” webinar series with ten RBBIZ Premium winners. As the attendees developed their budgets, several had some confusion over how to enter their numbers into their budgets. Turns out they were trying to make everything balance and were mixing up Budgeting with Accounting.

Let’s clarify.

Accounting is the process of making sure all your moola balances out to the penny. It is a double entry system that credits (adds to) one account and debits (reduces) another account for each and every transaction. Your balance sheet and profit and loss statement come from your accounting system. And, accounting normally deals with what has happened in the past.

Budgeting is the process of projecting income and expenses month by month over the course of a fiscal year and beyond. Its purpose is to take a close look at monthly cash flow (as in, do you have enough moola flowing in to cover what’s flowing out?) and to make predictions about what your profit will be at the end of the year. Budgeting is all about the future.

So how do they play together and feed each other?

When you create a budget, you make projections of what you think you will earn in income and spend in expenses, month by month into the future. Typically your projections are based on what happened last year and this information comes from your accounting system. So you look at what happened last year, then make your best guess as to what you think will happen this year. In your budget, these numbers are called your “plan” numbers (as in what you “plan” will happen each month).

Once your bookkeeping for the month is entered into your accounting system, you’ll then take those month end totals and plug them into the corresponding lines on your budget. If you spent $362 in office supplies, you would then enter $362 on the “office supplies” line in your budget. These are called your “actual” numbers (as in what “actually” happened each month).

While monthly numbers have to balance in your accounting system, they do not have to balance in your budget. You can even have some months that show a loss and others that show a profit. Obviously at the end of the year you want to be looking at a happy profit, but some individual months can come in at a loss. One cool thing about having a budget is that you can see in advance which months you’re predicting will have lower profits or even a loss (which probably means a cash flow crunch) and you can prepare for them.

Visit www.ProsperCreatively.com for a free ready to use, color coded budget spreadsheet. If you’re ready to get your budget done, click here for the next “Build Your Budget” webinar series and be sure to select the RBBIZ discount!

Cass Mullane’s calm, comfortable approach consistently yields positive results for clients. Her business and personal coaching practice, www.ProsperCreatively.com, specializes in delivering solid left brain business skills to right brainers and creatives in a fun, visual way. Cass is is one of our licensed Right-Brain Business Plan® Facilitators.

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The Right-Brain Business Plan®