Our "Full Budget"(*), along with "Quick Cash Flow Plan" and "Basic Budget", is a powerful tool to create and manage your budget. (If you are not sure which budget type fits your business, please check the article for comparison.)
The main objective is to create monthly cash flow for a certain period (12, 6, or 3 months).
Cash flow management is a key for a successful business.
A simple example is a difference between sales and cash-in. Even if one has good profit in the Profit and Loss, a cash short might occur when cash-in is delayed...
Here are the important points:
- Cash-in or cash-out timing is properly planned for changes in Profit and Loss (sales, purchases, and expenses).
- Do not forget any cash flows, which stem from Balance Sheet (asset purchases, loan, VAT payment, etc)
The Full Budget creates cash flows from Profit and Loss and Balance Sheet in a simple manner.
Let's see how it is done.
Table of Contents
- How to create a Full Budget
- First glance at your Full Budget
- Update your Full Budget
- Authorise and monitor
- Advanced topics
How to create a Full Budget
Go to "Reporting" -> "Budget Planner", then the selection screen is shown.
(If there are existing Budgets, then an existing budget will be shown. In this case, click "Budget List", then the "Create New Budget" button is shown in the list screen.)
When "Full Budget" is clicked, the 3-step setting screen comes up.
The first step is as follows:
Please note that the budget name can be modified later on.
Then click "Next" to go to the second step.
The source data for the budget is selected in the second step. Details are described on the screen, but if you are not sure, please select the first option (default).
If you are a Xero user and already have a budget within Xero, this can be used in CaFE.
Please note that only" Overall Budget" can be synced to CaFE , due to the current Xero's restriction.
The third step is to specify how initial business rules should be generated. For your first Full Budget, simply leave it as the default selection.
Then simply click the "Create" button. Then the creation of the plan starts. It takes some time. If it is created, an email is sent.
First glance at your Full Budget
Now let's see what is created!
Profit and Loss
After your budget is created, you will see the budget of Profit and Loss immediately in the "Draft" mode. The numbers are based on the second selection of the creation steps. For example, it is based on the actual number before 12 months if "Actuals from the previous year" is selected upon creation.
If you click the line in "Sales", for example, then the above chart will show the sales values.
To see the actual values in the previous year, say sales transactions in December 2020, click the dotted mark beside Sales, and click "Edit this budget".
Click the number in Dec 2020, then you will see the transaction lists for the period.
Now quickly glance at the Balance Sheet.
Click the "Balance Sheet" tab. This shows the bank balance, assets such as inventory or fixed assets, liabilities such as a loan, and equities such as retained earnings or issued stocks.
If you click the small triangle in each category, you will see more details.
If you purchase some asset in past, for example, the transactions can be checked. Say, you have purchased the asset "Inventory Material" in December 2020, click the dotted mark beside "Inventory Material", and select "Edit this budget".
In "Purchase (w/o VAT)" in "Previous Year", a number is shown for the purchased amount. If the number is clicked, then the related transactions are shown.
The third tab "Cash Flow", shows cash flows. This is related to "Profit and Loss" and "Balance Sheet".
But how? Here is a simple example.
Say, you have sales (Profit and Loss) of 1000 in Dec 2021. But this might not be cashed in on Dec 2021, due to its payment term. And VAT is added to the sales amount (if VAT rate is 20%, then 1200 will be received.
In the "Cash Flow", such business rules are taken into account to create cash flows. Such business rules are estimated from past transactions and can be modified.
The business rules can be seen by clicking the dotted mark, as below.
"Due Timing (Date of the month)" specifies the representative day of the cash-in. This is used to reflect the cash flow in our cash projection.
Update your Full Budget
Now we have glanced at the Full Budget. Now let's modify the budget!.
In this section, we will update sales amounts, add contacts and adjust cash flows. The sales accounts in Profit and Loss are automatically set up when related past transactions exist, but if you do not find the account, then refer to this instruction.
Update Sales amounts
Let's say, we update the sales amount by 10%.
Go to the "Profit and Loss" tab, click the dotted mark beside Sales, and click "Edit this budget".
Input "10" in the box next to "% increase", then click "Simulate". Then the newly calculated budget is shown under "New Budget (10% increase)". Note that the amounts in "New Budget (10% increase)" can be manually adjusted.
Then click the "Save New Budget" button to update the budget.
Please note that the "Cash Flow" is still NOT updated yet. In order to update the "Cash Flow" with the new budget amount, "Recalculate" is necessary.
This takes some time, and you will receive an email when it is done.
Actually, it is not necessary to recalculate each time the budget is updated. You may update multiple budget items, and if you want to see the resulting cash flow, you may do the recalculation.
You can manage the sales budget for specific contacts. Firstly, click the edit option on Sales in Profit and Loss, then click "Add contact level budget".
The candidates are listed up, sorted by the past transaction amount.
Select the target contacts, and click "Add selected contacts".
Note that "Others" shows up at the last line when contacts are added.
Now you can edit the budget, as previously explained!
Here, we are going to update the payment term for the sales.
Firstly, go to the "Cash Flow" tab, and click the edit option to select "Change business rule", then the following screen pops up.
* Payment Timing
As a default, payment timing after the invoice issue is estimated from past transactions.
If the customer's payment occurs one month after the invoice issue, set 100% for Next month. You may divide cash flows among several months, such as 50% for the Same month and 50% for the next month. The amount of the % must be 100%.
"Due Timing (Date of the month)" is used to reflect the cash flow in our Cash Projection.
* VAT rate
It is automatically estimated from past transactions. It can be updated manually.
* Payment Bank Account
This is used to reflect the cash flow to our Cash Projection. It is automatically estimated from past transactions and can be updated manually.
This is an advanced option and is explained in the separate instruction.
* Delete this item
This means that cash flow for the selected item is removed from Cash Flow. It is not available for the contact budget. In order to delete the specific contact budget, remove the contact budget from Profit and Loss, then automatically removed from the target contact from Cash Flow.
Please note that the update in the settings is reflected in the Cash Flow when recalculation is done!
Purchase (Direct cost)
In this section, it is explained how to update the purchase in the Full Budget.
There are 2 types of purchase:
(Profit and Loss type) Bill is issued with the Profit and Loss account, such as "Direct Cost"
(Balance Sheet type) Bill is issued with the Balance Sheet account, such as "Inventory", "Material" etc
If you are not sure which one you use, you may check it in the Accounts page.
If the "Account Class" is "Asset", "Liability" or "Equity", then it is Balance Sheet type.
(Profit and Loss type)
It is almost identical to that of Sales, which is described above.
(Balance Sheet type)
Firstly. go to the Balance Sheet tab, then find the target account. Then click edit option and click "Edit this budget".
This is a little bit different from that of Profit and Loss type.
There are 2 lines: Budget and Purchase (w/o VAT).
"Budget" means the balance at the end of each period, and "Purchase..." means the amount of purchase.
For example, if you plan to purchase the inventory of 1000 GBP (without VAT) in April 2022, and the balance of the item is 500 GBP, then set 1000 in "Purchase..." and 500 in "Budget".
Note that "Budget", which means remaining inventory, does not affect Cash Flow. You may input your planned closing balance of the inventory. If you are not sure, you may simply leave it 0.
(Profit and Loss type)
It is the same as that of Sales.
(Balance Sheet type)
Currently, the contact budget for the Balance Sheet type is not available.
It is the same as that of Sales, which is explained above.
(Profit and Loss type)
If the account is a direct cost, then the account is shown under "Direct Cost", otherwise under "Operating cost".
(Balance Sheet type)
The account is shown under "Inventory".
Expense (Operating cost)
The handling of the expense is the same as that of Sales. That means, that adding the contact budget is also possible.
TIP: the amount of the expense is set with the positive amount without VAT.
Fixed asset purchase
In this section, the fixed asset purchase is explained. If you do not find the account, please add it with the instruction.
If you open the edit screen from the edit option in the Balance Sheet, the edit screen pops up. Then click "Manual Adjustment".
Now the purchase amount without VAT is added in "Purchase (w/o VAT)". For example, if a computer is purchased in May 2022 with 1000 GBP, input as follows.
Note that the depreciation is NOT automatically calculated. "Budget" in the current amount (3000 in the above sample) is the remaining balance of the computer. You may update the balance according to depreciation. If you keep the above sample, this means that the new computer is purchased in May 2022, and it is depreciated with so as called "bullet amortization".
The depreciation can be updated manually in Profit and Loss, but it does not affect the Cash Flow. You may leave it as it is for "Budget". In that case, future Profit and Loss and Balance Sheet becomes the rough estimation, but once monitoring starts, the actual amount will be monitored.
The business rule setting is as same as Sales.
In this section, you will see how to manage loans in your budget.
Firstly, check if necessary accounts are already in the Budget:
- loan (in Balance Sheet)
- its interest (in Profit and Loss)
If they are not found, please add the account(s) using this instruction.
In the sample below, the following setup is used.
Update principal amounts
Firstly, go to the Balance Sheet tab, and click the edit option next to the loan account.
Then update the budget amounts with the Manual Adjustment option as follows, and click "Save New Budget".
Update interest amounts
Secondly, update the interest amounts. Go to the Profit and Loss tab, and click the edit option next to the interest account.
Update the budget amounts as below, and click "Save New Budget".
After recalculation, loan-related cash flows are shown.
If it is not shown in the Cash Flow tab, please add those accounts in Cash Flow with this instruction.
If the category of the cash flow is not properly set, then adjust it with this instruction.
This setting has different instructions. Please see this article.
The corporation tax may be automatically or manually updated.
Firstly, go to the Cash Flow tab, then click the edit option next to the corporation tax account.
Then the following screen pops up.
If the "Auto calculated budget for tax" is on, then the tax amount is automatically calculated based on the net profit on the target period.
For tax payment in 2022, for example, the net profit of 2021 is used.
If the account close is in December, then net profit between Jan 2021 to Dec 2021 is calculated, then the above Tax Rate (19%) is applied. The actual payment is 1st September in the sample above.
If the "Auto calculated...." is off, then amount in the Profit and Loss is used. To set the corporation tax amount, go to the Profit and Loss tab, and input the amount when the actual payment is done.
Note that the above settings (Accounting Period, Tax Rate, Payment Dead Line) are ignored in this case.
Then recalculate the budget to reflect the changes in Cash Flow.
VAT is automatically calculated in the Full Budget. Thus, the VAT account, which is in the Balance Sheet, is not editable.
(If your business is not registered for VAT, all the VAT rates are set to 0, and resulting VAT cash flows are all 0.)
The VAT settings are in the Cash Flow tab.
These settings are estimated from past transactions, but they might be not correct. Please correct it according to your VAT registration.
Authorise and monitor
When you have finished the update, you may "Authorise" the budget.
This means that the budget is locked so that it is not editable anymore.
If the Authorise button is disabled, a recalculation is needed before authorisation as there are changes done after the last budget calculation.
Your budget is now ready to monitor.
You may see the actual transaction and result of the Profit and Loss and Balance Sheet against the budget. It is automatically updated when you sync data.
If you want to update the budget after the authorisation, you can copy the budget.
The monitoring of the Budget is explained in this article.
If you do not see the necessary accounts for your budget, you may add them.
Firstly, click the edit option which is placed on the right hand of the "Action pane", as below.
Then select "Add new budget items", and select "Profit and Loss" or "Balance Sheet", depending on the accounts. In the sample below, accounts in "Profit and Loss" are explained.
Then the following screen pops up.
Then select the target accounts by clicking the boxes.
Then click "Add selected items". Those accounts are added in "Profit and Loss", as below.
They are automatically added to the "Cash Flow" under the corresponding cash flow category. In this sample, they are added under "Interest" in the "Cash Flow".
If you cannot find the item in the "Cash Flow", you can add it in the edit option under "Add new budget item" and "Cash Flow".
Change the Budget Item Category
Sometimes you may notice that the category of the cash flow is not properly categorised. For example, say "CBILS" should be a debt account, but it is shown in "Other Liability".
In such a case, you can adjust it by changing "Budget Item Category".
In this example, "CBILS" is a Balance Sheet account. Thus go to the Balance Sheet tab, then click the edit option next to the account. Then click "Change budget item category".
In the pop-up screen below, you can see that the current Budget Item Category is Current Liability. Now you can change it to "Debt" from the list.
If you recalculate the budget, the account is properly shown.
* Note that Full Budget is available for Xero or FreeAgent users, whose subscription is "Business" or higher.