YNAB BLOG

Goodbye Quickbooks: You Need A Separate Business Budget

You Need a Separate Business Budget (YNASBB—nope, that doesn’t work. Let’s let it die here.)

YNAB will serve your small business well. It has mine. It gave me what I call, “pile-of-money clarity.” Several years ago, YNAB was profitable with a very small team, and I couldn’t have been happier. Then I moved YNAB from Quickbooks to YNAB. That move was a game-changer for me. I suddenly had clarity surrounding the business checking account balance. I no longer had to wonder if we could hire, because I could see that our category for payroll was doing just fine. I saw I could be more aggressive with advertising, because I saw that we had advertising dollars where they were supposed to be.

We went from a company with seven part/full-time team members, to a company with 27 over a two-year period.

All because I used YNAB, where it settled my stomach, and helped me conquer the natural risk aversion I had to hiring people, and growing the business.

Yes, I believe YNAB (the software) will serve your small business very well. It will help the risk-avoider take calculated, comfortable risks. It will help the risk-taker pull back a little bit, and be more calculated in his or her risks as well.

How to Create a Separate Business Budget

In order to do this right though, you need to set up a separate business budget. Unless you have the teeniest of tiny little side operations (where a separate master category for the entire business suffices), you need to set up a separate business budget.

Go to File -> Create a New Budget… and get started.

Keep your business budget separate. It will make everything easier (taxes, reconciliation, personal vs. business expenses, etc.)

 Wait a Minute, YNAB Won’t…

YNAB won’t send your invoices for you (though you can actually track them pretty well in YNAB). YNAB won’t track your time for you. YNAB won’t track your mileage for you. YNAB won’t handle your asset depreciation. It won’t print checks. It won’t integrate with your accountant’s tax software. YNAB won’t run your payroll for you. YNAB won’t track your inventory for you (it could, and maybe I’ll write about that later).

Well sheesh Jesse, what will YNAB do?

It will add value to your business by giving you the insights you need to clarify your priorities, cut wasteful spending, boost spending where profitable, and maybe even show you that you can take a steady salary. It will give you peace of mind, as it relates to your business’ cash flow. Besides finding great people to hire these past several years, the best business decision I made was to move YNAB to YNAB.

A P.S. Regarding YNAB’s “Won’ts”

YNAB, strange as it sounds, is a multi-million dollar company now. Here’s how a multi-million dollar company handles all of the things that YNAB won’t do. (Hint: an end-all-be-all software package can, many times, be harder to use than approaching your software needs a la carte.)

Bookkeeping. We do our books with YNAB. As a result, YNAB has a healthy buffer, keeps spending in check, and the entire team gets to spend a week in Costa Rica this year (Rule Two applied over an 18-month period!)

Invoicing. We don’t send many invoices, but when we do, we use Freshbooks.

Time-tracking. YNAB has just started tracking time on a new project, and we’re using Harvest (Adam, our CPO, likes them.)

Mileage tracking. I track mileage for the four months after taxes are due, and then give up. When I do track mileage, I use an app on my iPhone. Come tax time, had I faithfully recorded the year’s mileage, I would send my tax accountant the mileage report.

Depreciation. YNAB has a few assets that require depreciation. Our tax accountant tracks that for us each year. (Any accountant worth their salt will do that. As most of you probably know at this point, Casey Murdock handles YNAB’s taxes, and a bunch of the team’s personal taxes as well.)

Check-writing. We have a book of (free) checks, and when we need to write one, Chance (our COO) grabs a pen from his desk and fills out the check. I sign it, then enter the check in YNAB. If we need to send a lot of checks at once, we use the free business bill pay service of our bank.

Tax filing. YNAB doesn’t integrate with our tax accountant’s tax software, so do you know what we make him do? We send him a spreadsheet of all of our inflows/outflows of the year, and we make him do “accountant-y things” and build a pivot table to aggregate category spending and manually enter the numbers into his software. It takes him a few minutes, and he checks for accuracy along the way, instead of checking the accuracy of an import after the fact. (I re-read this and admit that I sound quite snarky here. It’s a pet peeve of mine, letting your accountant’s two hours of work for your taxes dictate your entire year’s financial workflow.)

Payroll. We run our payroll through Paychex. I pull up the monthly payroll report and enter the outflows into YNAB. It takes me a few minutes. I like hand-entering all of our team’s pay, because it makes me happy they’re on the team.

Inventory. We don’t have any inventory to track, but if we did, I’d buy a separate piece of software to track inventory (if it was a lot), or I’d use YNAB to do it (if it was just a small bit of inventory tracking). Cash outlays for inventory would be entered in YNAB, obviously, because YNAB handles your cash.

25 Responses to “Goodbye Quickbooks: You Need A Separate Business Budget”

  1. Dave M

    We have a small log cabin rental business, and started using YNAB to track the business accounting. It works perfectly!

  2. Lyz K.

    I don’t use YNAB for business, but wanted to throw in a “second” for your Harvest recommendation. It’s an amazing app and the best time tracking/invoice integration I’ve come across. Speaking of which, is there a reason you use FreshBooks for invoices instead of Harvest? Just curious, as I’ve never tried it.

    • jesse

      I think we settled on Freshbooks because we didn’t need the time tracking :)

      Hey Lyz, what kind of business are you in? How could YNAB fit into the picture?

  3. hedy

    Jesse .. you sold me .. I’m switching to YNAB for our small business (we have a learning center). And, thank you for sharing your knowledge … I really appreciate it!

  4. P/

    YNAB, strange as it sounds, is a multi-million dollar company now.

    You and the team absolutely deserve it for the help you have provided so many with. The amount of high quality blog and podcast content alone mean I will always buy the latest verison of YNAB for life.

    • jesse

      I’ll admit that it does sound strange. We keep it pretty real down here though. There’s so much still to do!

  5. Paul

    Jesse I think I’ll try it again. I am the king of the YNAB restart I am afraid. At first I tried the separate Farm and Personal budgets with our rental properties under Personal. Then I put everything under personal. Then I fell off the wagon again. Now I am thinking I should make three totally unique budgets and really working at keeping all three groups of money totally separate. One of my issues is that I sometime am not as careful about what credit card I use to purchase something which is why I originally switched to all in one budget, but then it is hard to keep money in the Farm or Real Estate checking accounts from showing as available in the personal budget without lots of adjustments to buffer categories in the business master categories.

    • mark

      Hey Paul –

      Mark here (YNAB Coach). I’m actually working with a few small businesses now – helping them set up and maintain their business budgets. I’d love to help you dial in your budget setup and your workflow. Drop me a line: mark@youneedabudget.com.

  6. Rob

    This HAS to be an April Fool’s Joke. Hand entering all your team’s pay??? Making your tax accountant do accountant-y things? Hahahah. That’s the best…

  7. jesse

    Your comment is an April Fool’s Joke Rob! :D I’m serious as an aspirin over here. I do enter business transactions on my phone as they happen, but I also do a _quite_ massive import at the end of each month to reconcile the accounts. I do enter the team’s pay by hand though, totally true.

  8. Jon Dale

    I switched to YNAB for my business last year after listening to your podcast series on your rentals and I love it!

    And my accountant is fine with me EOY spreadsheets.

  9. Anonymous because my mom might see this :)

    Unfortunately, YNAB won’t really work well for small businesses who NEED the ability to integrate all of those things that you (YNAB as a company) rarely do. My parents use Quickbooks, though they dislike many aspects of it, because at this point it works the best for what they need it for and DOES integrate all those other things that your company personally doesn’t need.

    • Jesse

      Hi Anonymous, thanks for your comment. My question would be more why the integration is necessary? If one tool does one thing really well, and another does another thing very well, why do we need the integration? I’m very anxious to understand this, so we can better serve YNABers :)

  10. chosenbyjesus

    The first year I taught piano I put everything together (I was using iBank at the time). Basically, income was deposited into my personal bank account and I kept track of the income and expenses with another program (with receipt backup). Expenses came up? I cash-flowed them. It was kind of a mess.

    When I started teaching again (1 year break), I had YNAB. I did a separate budget and it’s about 1000x better. I actually estimate my expenses for the month (they’re pretty fixed) and pay myself the leftovers. The bonus? I am very nearly buffered so I don’t need my “pay” immediately (I also have a full-time job). Great if something goes wrong with parents paying!

  11. CB

    I swear by YNAB for my personal finances, but I’m not convinced that it would improve my business.

    I currently use Freshbooks for tracking income and expenses because 90% of my business’s income is invoice based (I’m a web and graphic designer and desktop publisher). It does my time-tracking, as well. I used to use Kashoo in conjunction with Freshbooks’ invoicing because Kashoo looks and works how you would expect bookkeeping to from what you learn in accounting classes, but since Freshbooks can also handle expenses (with attached receipts), I found that I could cut Kashoo out of the process. Plus, I’ll be honest, those accounting classes are no longer so fresh in my mind…

    I use a master category in YNAB for my business because I don’t have many various types of expenses, I don’t have payroll, and I’m currently structured as a Sole Prop. (will be LLC in the future since we’ve grown a good bit).

    I’m to the point where I could afford to spend some more on my business, but that is tricky in and of itself since advertising is not very lucrative for me. My advertising dollars cannot compete with the seemingly endless other web design companies around, and the majority of my business comes from word of mouth, anyway, since I do yield a very positive customer experience. I instead tend to focus on some targeted networking events such as equestrian-related since I have a big foot in the door with that audience.

    So, a separate budget seems like it would complicate things for me, but I am open to considering it, should I be convinced it would be worthwhile.

  12. Sam

    Hello all,

    I am a die-hard YNAB fan. I’m so grateful for Jesse’s journey and love the YNAB mission and team.

    With that said, I’m writing a comment to rain on this parade a little.

    I took the full plunge to use YNAB for my business two years ago. Jesse’s blog posts had inspired me. I spent hours on the conversion and hours setting up “hacks” (consulting with Mark to help with these) to try to get it all I needed it to do. Then this December, I finally decided with great sadness that I simply couldn’t get YNAB to do what I needed it to do of my business.

    I run a six-figure tutoring business. Here are the things I could not get YNAB to do that were essential for my business:

    1) I could not easily track separate sources of income. I could not say, track income from Tutoring Program X versus Tutoring Program Y, without the hack of using an expense account to track income. This hack screwed up all of my reporting so that the YNAB reports became useless to me. I ended up exporting all my data to Excel to be able to analyze trends there. Tracking separate sources of income is essential for me so that I can observe trends and make decisions about what revenue lines are profitable.

    2) I could not easily figure out how to look ahead more than one month at a time. I *know* that YNAB isn’t a “forecasting” tool. I’m not talking about forecasting, I’m talking about short-term cash-flow budgeting. I know that YNAB works well for people with regular paychecks; my business has highly seasonal variable income and needs a longer cash-flow view. I have heard several YNAB staff answers to this issue, but I couldn’t figure out how to make any of them work for me. I tried really hard, including some hacks that Mark suggested but that I just couldn’t keep in my head. I’m a pretty smart person (I think), so when I couldn’t figure it out after hours and months of really trying to, I moved to Excel crunch the numbers I needed.

    3) I could not get an easy way to import PayPal records into my account. I am pretty certain this is largely a PayPal issue — PayPal reporting is just terrible, but gosh, the number of clicks I had to do to get the report out of PayPal, clean it up, then into YNAB — a lot of work. I am not a PayPal fan but I’m stuck with it for my business for at least the next several years. Moving to Xero accounting software has been worth it to me for the clean PayPal import alone.

    This year I bit the bullet and shifted fully to an Excel budget that I spent hours setting up. It’s not as easy or as fun to use as YNAB, and I can’t use it on my iPhone, but it can get my essentials #1 and #2 done. For categorizing, I moved to Xero, which has a nice, easy look and feel / iPhone app. It has meant moving my finances to the cloud, which I have not been thrilled about, but I’ve found it the next-best-easiest-to-use software for categorizing income and expenses.

    I am thrilled that YNAB and it’s team are growing. (I’ve especially loved the new blog posts from the new writers this year.) I admit I am still secretly hoping that one day Jesse & team will decide it’s worth their while to develop a separate business version of their software that can attend to exactly the needs that drove me elsewhere. I’d love to come back to the fold. :-)

    In the meantime, if anyone else is scratching their head asking themselves why the switch to YNAB for business isn’t as easy or exciting as the blog posts have suggested, I hope my comment provides some validation. I hear you and feel your pain. :-)

    My best to the YNAB team and all small business YNABers,
    Sam

    • mark

      Hi Sam –

      Thanks for such thoughtful, thorough feedback. Are you sure it was me you talked with? I just joined the company a year ago. I only ask because I’d love to chat with you about the specifics of how YNAB didn’t work for you. I may or may not have answers you’re excited about, but the conversation would be worth a ton to us.

      Thanks again!
      Mark

      • Paul

        Hi Mark, thanks for keeping up with us. I need to email you as you asked a couple days ago when I get some time. I will try this afternoon. Anyway I will second Sam’s point #1 above and somewhat #2. I have a lot of separate enterprises within my farm and also my rental properties. Especially on the farm I need to be able to determine which enterprises (meat chickens, eggs, pigs, cattle, fruit, etc) are not holding their own monetarily. In some cases they might have other values such as adding fertility or being a loss leader for sales of more profitable items. Eggs are a prime example where even though they are break even at best, I have weekly contact with customers that encourages purchases of beef or pork where I have better profits. I just need to know when I have to figure out these intangibles and how much they have to be worth to make the extra work worthwhile. This means I still have to keep separate enterprise budgets in Excel for each activity.

    • Jesse

      Hi Sam,

      Thanks for the feedback! I’m anxious to Mark to chat with you, so we can learn where the hangups were. I’m still hopeful!

  13. Wyatt

    I have a question about setting up my wife’s business on YNAB. Currently, her budget is in Excel and we track her business activity in an off-budget account in YNAB. The reason is so I can easily handle her paychecks: When she draws her salary I enter a transfer on our bank’s website, record the transfer in the off-budget YNAB account, and voila, money appears in our budget ready to do its work. The bad part is that I enter everything twice, it takes way too much time, and we can’t really see what’s happening with the business. Can two budgets talk to one another, so a transfer of cash from Business Budget into Personal Budget will populate automatically? Or will I need to enter the transaction twice, as a debit on one side and a credit on the other?

    • Jesse

      Hi Wyatt, there isn’t a way to have two separate budgets talk to each other. How many times is your wife paying herself from the business each month? I say that only because I do the same thing (pay myself from the business) and it’s just a matter of entering an outflow in the business and an inflow in the personal account. So you enter the in and out as two distinct transactions, instead of entering them as one transfer transaction.

      I would set up a separate business budget for her. I think it’d do really well if you’re okay with entering two transactions instead of one when she pays herself!

      • Wyatt

        Hi Jesse. She pays herself twice a month usually. It’s probably less work to do 2 transactions in YNAB than what I’m doing now. Since I have been tracking her expenses in YNAB as an off-budget account inside of my family budget file, is there a way to transfer those entries into a new budget? Or is it best to just start fresh? I guess I’m concerned about losing 4 months of data for year-end reporting.

      • jesse

        You definitely don’t want to lose those four months. I’d export YNAB to a QIF, and then import the business transactions into a new YNAB budget file for your business.

  14. Emilah DeToro

    Thanks for this blog. I have been trying to figure out how to make the switch form QB and it’s helpful to see how YNAB, the company, does it. I asked the customer service folks some of these “YNAB wont’ do” questions and they didn’t answer that part of the email. It would have been helpful if they just sent me to this blog!

    I am in the process of switching to an online selling & scheduling platform (mindbody online) that will track categories of income (which YNAB can’t) and inventory, so I can use the data from that to satisfy my own curiosity. It will also make my life easier in a variety of other ways.

    That frees YNAB up for bookeeping, which can actually be pretty easy for taxes because I can create categories that match exactly what I need for the IRS. My business is not that complicated (no depreciation, no payroll, no time-tracking), so it’s mostly my perspective that has to change!

    I’m hopeful…will keep you posted.

  15. sydmusic

    Great blog, great software. I’m in the music-making/record-making business and I *do* need a full-featured way to track inventory in addition to all the great stuff YNAB does. Do you guys have any recommendations? I assume if you did, they’d be in the original post. But I thought I’d ask, I’m about to looking…

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