Budgeting vs Bookkeeping: What’s the Difference and Why You Need Both
You may not have realized it, but budgeting and bookkeeping are two different things. Both have to do with your income and expenses, but they are gloriously different from each other and each totally awesome in its own right. I’m going to take the next 5 posts to walk you through how budgeting differs from bookkeeping, why it’s so awesome, and how to get one going for your business. You ready? I’m ready. Let’s go.
So, back to the original question: What’s the difference between bookkeeping and budgeting?
To put it simply:
Bookkeeping looks back. It tracks what you earned and spent.
Budgeting looks forward. It helps you anticipate your future income and prepare for your upcoming expenses.
And now, a little more detail. (Don’t worry! Not too much detail!)
Bookkeeping
Bookkeeping is the tracking and categorizing of all your income and each expense. It looks backward and organizes what’s already happened. Official accounting/bookkeeping software like Quickbooks, Xero, or Wave make this as smooth as they can. The software gives you awesome reports that you (or your accountant) will need when preparing your taxes each year.
Having clean books is essential for getting detailed information about the financial state of your business. (If your numbers are half-assed and incomplete, you’ll only ever have a half-assed and incomplete picture of your business!) Made some income goals for the quarter and want to see how you did? Your bookkeeping software can tell you. It’s also super important for tax time, and if the IRS ever comes calling. Therefore, you want to be as precise and accurate as possible. This is no time for guessing or estimates!
Budgeting (aka: Managing Your Cash Flow)
Budgeting, on the other hand, looks forward. It’s about predicting the future. (Based on solid data. We’re not pulling numbers out of the ether, here!) Being on top of your cash flow can mean the difference between:
Having a good night’s sleep after confidently purchasing plane tickets for that big conference you’ve had your eye on.
Being anxious about whether that new client you landed will cover the cost of said conference, or maybe you already earmarked those funds for that course you want to buy?
A good budget is like having Waze or Google Maps in your pocket. You know what’s coming, and how to get where you’re going. If something wonky comes up, you’re able to adjust and keep moving.
It takes all the data you collected with your bookkeeping, and projects it forward, giving you a good picture of what’s coming down the financial pike for your business. You know, so you’re not operating in the dark. You’ll be able to make informed decisions on, say, whether you have the funds to hire a VA. Or go whole hog on the deluxe branding photoshoot package. Or if you need to scale back on spending so you’ll be able to pay yourself your full amount going forward.
Budgeting and bookkeeping together are key to a healthy business. Alone they are each useful. Together they form the MOST AWESOMELY SOLID financial foundation for your business.
And you’ll sleep better at night.
