Before You Start

This guide assumes you have a Xero subscription and a baseline understanding of your company’s revenue and expense drivers. Ensure your Chart of Accounts is well-structured.

Overview

35 min
Setup Time
Intermediate
Difficulty
Quarterly
Maintenance

What You’ll Learn

  • How to prep your Xero accounts for effective budgeting
  • Setting up a new budget in Xero’s Budget Manager
  • Implementing a dynamic, rolling 12-month forecast
  • Analyzing budget vs. actuals reports for actionable insights

1. Preparation Steps

Before diving into Xero’s Budget Manager, ensure your financial data is clean and your accounting structure supports detailed budgeting.

Required Considerations

  • Clean and organized Chart of Accounts
  • Accessible historical financial data (last 12-24 months)
  • Clear understanding of all revenue streams and their drivers
  • Identified fixed and variable costs

Best Practices

  • Categorize expenses granularly for better control.
  • Review and utilize tracking categories for departmental or project budgets.
  • Ensure all bank accounts are reconciled up to date.

2. Understanding Rolling Budgets

A rolling budget continuously updates by dropping the earliest period and adding a new future period, typically maintaining a 12-month forecast. This method offers flexibility and keeps your financial planning relevant.

Pros:
  • Dynamic and adaptable to market changes.
  • Encourages continuous planning and re-evaluation.
  • Improved accuracy compared to static annual budgets.
Cons:
  • Requires regular, disciplined updates (e.g., quarterly).
  • Can be time-consuming for initial setup and ongoing maintenance.
  • Needs consistent and reliable data input.

3. Step-by-Step: Creating Your Budget in Xero

Here is the high-level workflow for setting up your rolling budget in Xero.

Your financial data flows from historical records into Xero’s Budget Manager, which you then update regularly to maintain a rolling forecast.

Here is a sample code block showing a typical budget structure:

{
  "budget_name": "Q1 2025 Rolling Forecast",
  "start_date": "2025-01-01",
  "end_date": "2025-12-31",
  "line_items": [
    {
      "account": "Sales Revenue",
      "jan": 10000.00,
      "feb": 10500.00,
      "mar": 11000.00
    },
    {
      "account": "Marketing Expenses",
      "jan": 1500.00,
      "feb": 1600.00,
      "mar": 1550.00
    }
  ]
}

4. Setting Up Your Rolling Budget

  1. 1

    Access Budget Manager

    In Xero, navigate to ‘Accounting’ > ‘Budget Manager’.

  2. 2

    Create a New Budget

    Click ‘New Budget’ and select your desired reporting period (e.g., 12 months from the current quarter).

  3. 3

    Enter Budget Details

    Populate your budget for each account. You can use historical data as a baseline and adjust for future expectations. Utilize ‘Budget settings’ for advanced options like tracking categories.

  4. 4

    Roll Forward Periodically

    At the end of each quarter (or month), update your budget by adjusting the start date and extending the forecast period forward, typically using the ‘Copy to next period’ function as a base for adjustment.

Common Pitfall: Static Budget Mindset

A rolling budget requires active management. Do not create it once and forget it. Regular quarterly (or monthly) reviews and updates are crucial for its effectiveness and relevance.

5. Monitoring and Analysis

Budget Performance Checklist

  • Review Budget vs. Actuals report monthly
  • Identify significant variances and their root causes
  • Update future forecast periods based on new data and insights
  • Communicate performance and adjustments to stakeholders

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