YNAB BLOG

YNAB’s Business Category Setup in YNAB…Revealed.

2014-04-18_1411

“Revealed” is such a hokey marketing word. But I just returned from MicroConf in Vegas and hokey marketing is on the brain.

In working with a lot of small business YNABers over the past little while, I was asked how I (Jesse) have set up YNAB’s (the business) categories in YNAB (the software).

I’ll tell you right now, I’d love to pare them down. It’s a lot easier to do that on the personal side, but still worth the effort either way.

Also, bear in mind that the easiest way to determine your category set up is just to start and see what you need as transactions come up and surprise you.  Another little hack is to scan your bank statements over the last few months and write down potential categories for transactions (especially the larger, less-frequent expenses that you maybe would have forgotten, but now won’t, because Rule Two will be firing on all cylinders).

Without further ado, and perhaps just for inspiration, here is our YNAB Business Category Setup, subject to change on the whimiest of whims.

  • Reserve
    • Buffer – I keep about two months of revenue in our Buffer, because we follow Rule Four, and then some.
  • Revenue – Desktop
    • YNAB 3 – about to be retired, since we aren’t selling it at all anymore.
    • YNAB 4
    • YNAB 4 Upgrades (here’s where you can upgrade, if you haven’t.)
    • Amazon.com – I’m hiding this one right now, because it shouldn’t be there. We don’t sell on Amazon.com anymore.
    • Giftcode – If you buy a digital giftcode for a friend.
    • Amazon Downloads – Holy hannah, here’s another one. Hiding now.
    • Guide with Code – for the workbook+redemption code combo.
    • Guide with Key – for the workbook+activation key combo.
  • Revenue – Mobile
    • iPhone – hiding this now. No longer even care to look back and see it.
    • Android – and hiding this one too.
    • iPad – just kidding. This isn’t even on there, because we’re not done. Also, I announced that the coming iPad app would be free anyway.
  • Revenue – Other
    • YNAB the Book – monies come from Amazon, where they won’t allow us to list the book for free, but require that it’s $.99. This arrangement is, needless to say, making us rich.
    • Coaching – we occasionally coach someone for about a month that really wants one-on-one attention.
    • Commissions – we earn commissions from our relationship with Betterment, my favorite way to invest. Oh, and Ting, where several of our team members have saved a lot of money on their cellphone bills. Also, commissions from YouNeedTermInsurance.com.
    • SB Consulting – we work with several small businesses, where we do their books for them (in YNAB, of course) and meet with them monthly to do some analysis, strategize cash flow management, etc.

An update 20 minutes after posting: In the comments, I’m receiving questions about “revenue” categories. I use the standard categories, and record inflows to them. That sticks all of the funds into their appropriate product categories. Then, when I’m ready to budget, I suck the funds out of those categories by entering the appropriate negative budget amount to get the revenue categories all at balance:0.  For a more in-depth, older (but still relevant) blog post specifically about this, head here, specifically look at the “How I Made the Transition” section halfway down.

The rest of these categories aren’t as fun, as this is where money starts flowing out, instead of in. (Except for paying our team. I really enjoy doing that.)

  • COGS
    • Printing & Shipping
    • Transaction Fees – fun fact: it took YNAB something like two years to earn in a month what we now pay in fees for processing credit card transactions.
  • Product
    • Redacted – can’t say. But I do fund it, so when we’re ready, we can spring on it.
    • iOS – iPhone and iPad efforts.
    • Android – our Android efforts.
    • Desktop
    • Redacted – sorry…exciting stuff though.
    • Design – anything from branding, to UX, to print.
    • QA – to make sure we never ever ship a bug. :)
  • Benefits & (Some) Taxes
    • 401k – Employee – when I process payroll, employee contributions withheld from their paychecks and sent to the 401k are paid through this category.
    • 401k – Safe Harbor – a fancy name for the three percent that YNAB contributes to the 401k, on behalf of stateside, full-time employees. It vests immediately.
    • Health Insurance – I avoid having health insurance be a benefit of employment with YNAB (I think individuals should shop around, employers shouldn’t do this for them), but this line item covers my own personal insurance for my family.
    • Workers Compensation – A required outflow when running payroll.
    • Payroll Taxes – FICA, half paid by YNAB, and half paid by YNAB’s team.
  • Support & Education
    • Customer Service – the good people behind every single support email sent our way!
    • Teachers – the various voices that come out of your computer, should you do the very, very smart thing, and attend one of our excellent online classes.
  • Advertising & Promotion
    • Marketing Experiments – I set a goal to fund this category every month with a fixed amount, and have it be dedicated to doing experiments in marketing. So far I cannot come up with any good ideas that require the funds I’m setting aside, but I’m still sticking to my goal.
    • PPC – Google, Yahoo!, MSN search ads.
    • Referral Fees – fees happily paid to you good people, for sharing YNAB with your friends through our referral system.
    • Other – a grab bag of marketing efforts not large enough to merit their own category.
    • Blog Mgt & SB Consulting – this really should go somewhere else, because it’s changed quite a bit. It’s Mark’s category.
    • Radio – this, so far, has been somewhere between dismal and an absolute failure. I’m in contact with a guy that built his business on radio, and he said he could help me. #holdingOutHope
    • Facebook – occasionally we promote a post on Facebook, or run some other kind of ad.
  • Systems & Admin
    • Hosting, Domains, Software, etc. – this category grows on its own, I swear. Beware the $50 monthly charge for that necessary service, where there are 40 of those services. (I exaggerate only slightly.)
    • Supplies – office supplies, one of my favorite categories. Protein powder, bananas, peanut butter, and other less important things, like paper.
    • Telephone & Internet – you guessed it.
    • Fees – our tax adviser, bank fees for wires and ACHs, the occasional foreign transaction fee, payroll processing fees, etc.
    • People – This is for part of the YNAB team that isn’t part of a specific category (me, our COO, our executive assistant…I think that’s it.)
    • Office Space – because we love that movie. And because of our rent here at the office. I honestly haven’t seen the movie, which means half of you now hate me.
  • Business Development
    • Conferences – to attend, or send someone to attend.
    • Travel
    • Meals & Entertainment
  • Team
    • Gifts – we give birthday presents, and Christmas presents. And occasionally spontaneous YNAB swag.
    • Meetup – Costa Rica in November for every single team member. If you’re going to join the YNAB Team, you’d do well to do it before…the middle of October or so.
    • Team Development – funding our monthly book club at the moment, and maybe some team feedback analysis that I’m looking into.

This next (and last) master category is all non-YNAB stuff. This is the last category, because it’s funded last, and only with funds that couldn’t be better used further up the list. Well, except for paying me and Uncle Sam. Those are important.

  • non-YNAB
    • Interest – it’s cute how much this is each month.
    • Shareholder Distributions – this is where I track money that flows out of the business to me, either as a direct payment, or as an expense that’s not a business expense (like when I bought my dog).
    • Quarterlies – I fund this each month, based on profits earned from the prior month, and then pay out the category balance on 4/15, 6/15, 9/15 and 1/15 (of the next year). EVERY SMALL BUSINESS OWNER NEEDS THIS CATEGORY.
    • Other Investments – sometimes an interesting investment pops up, and I’ll fund this a little bit so I can jump on the opportunity.
    • Real Estate – I put a little bit here, if there’s any left. It goes toward my rental property empire (2). This is a way for me to not keep all of my eggs in one basket (YNAB).
    • Betterment – to keep things sane on the personal side of things, I contribute to Betterment directly from the business account. This is basically an owner distribution, but I capture it separately because I care about it enough to do so :) This also means that all of our required “saving” happens with money that never hits our checking account. Which has made it easier for me to give the budgeting reins to Julie.

Reading back through this post, I find 1) that it was fairly therapeutic and 2) quite detailed. For those of you that asked the simple question of, “How does YNAB have its categories set up?” I think you got more than you bargained for :) Happy to answer questions in the comments.

41 Responses to “YNAB’s Business Category Setup in YNAB…Revealed.”

  1. Andrew

    Tell us a bit about revenue categories. To now I just used available this month or next month.

  2. Jon Dale

    Do you pay your quarterly tax payments out of your business account or pay yourself as a distribution and then pay them from personal?

    • jesse

      I pay them directly from the business account. Everything in the non-YNAB master category is basically a distribution anyway, just sometimes under a specific heading (Quarterlies, Betterment, RE, etc.)

  3. P.R

    Redacted – can’t say. But I do fund it, so when we’re ready, we can spring on it.

    Redacted – sorry…exciting stuff though.

    What a tease! I reckon I have one figured out but I am excited about the other one.

    I’m finding these posts very useful. Thanks again

  4. Emilah Dawn DeToro

    Thank you, Jessie. This is very helpful. One remaining question…How do you create revenue categories? I mean this literally, like, in the software. I’ve asked and the response is always “you can only have ‘income for this month’ and ‘income for next month’.” Clearly its possible….you do it !

  5. Todd Smith

    How do you get the data from each customer sale into YNAB? I can’t imagine it is done by hand. Do you have any automation?

    • jesse

      We use two different payment processors: Paypal, and Stripe.

      Stripe makes daily deposits into the business checking account, so using Payee Rules, those are auto-categorized when I import our ofx file from the bank.

      Paypal isn’t nearly as nice, but it works very well to go to Reports -> Monthly Financial Summary, which is basically an inflow/outflow report at the high level. I enter only those summary transactions into our YNAB Paypal account, and will occasionally drill down into payments sent, so I can categorize very minor spending that flows out of Paypal (a few refunds, and paying for a few random items or services that way). I input the data by hand, but it ends up being about six transactions, so it’s no big deal at all :)

      • Todd Smith

        Thanks, Jessie. So, if I understand correctly, Stripe deposits each transaction separately with info about which product was purchased. Then you can use that info to categorize income with Payee Rules. Is that right?

        I’m using Authorize.net which deposits batches of payments once a day (with all the different products mixed together). I’m not sure your system would work with Authorize (or other typical merchant services accounts). Am I missing something?

      • jesse

        Ah, nope. Sorry I wasn’t clear there. Stripe is only used for our in-app purchase of the desktop software, so I know that every deposit coming from them is for YNAB 4.

        If Stripe ever handles more than that, I’d likely run a report in Stripe to get a breakdown of it, and make an adjusting transaction in YNAB (split a 0-dollar transaction flowing dollars out/in to specific revenue categories as appropriate).

      • Todd Smith

        Ok, that’s cool, actually. You’ve got me thinking. I do have another way in my shopping cart to see revenues by product. I could use that to split the YNAB income into categories say at the end of the month. I’m going to have to play with this. It could be doable.

        Also, I could use my shopping cart as my CMS, so no need to keep customer data in my accounting software. I’m starting to get a glimpse of how using YNAB for my business could work.

        Of course, there is sales tax, and tracking that, but I don’t have too much of it. Worst case scenario, I could run parallel books if necessary. I’d love to avoid that though.

      • jesse

        I’m all for avoiding duplication of data, if possible. But it’s also (I say begrudgingly) not the end of the world :)

  6. Andrew

    Thanks for the update, Jesse. The question of how to categorize income is a bit sticky for YNAB. I noticed in your video example that income category consistently displays zero. Recognizing that this is a function of the way you have modified your categories, I would suggest altering YNAB to allow some categorization of income so that users don’t have to “rig” YNAB” by entering income and then entering a negative to make that money available. That said, I have been using YNAB for my business for three months successfully and will make the same modifications you demonstrated in your rental property tracking video.

    • jesse

      Andrew, I agree that the long-term fix is to allow for customizable income categories. I’m gunning for it in product meetings :)

      That being said, there is something quite nice about dumping the income into a bucket, and then having to explicitly extract it in order to deploy it elsewhere!

  7. Simon

    Jesse have you decided to stop selling the book that detailed the method rather than using the software? The one you mentioned on a podcast. I didn’t think I would need it but I liked the idea of a beautiful book about YNAB.

  8. Edwin Scheepers

    Your Category “Non-YNAB” has a sub-category “Quarterlies” and you emphasize this category strongly. My I ask that you explain this for me, as this is not clear what it is about and what the figures mean in your post…. “Quarterlies – I fund this each month, based on profits earned from the prior month, and then pay out the category balance on 4/15, 6/15, 9/15 and 1/15 (of the next year). EVERY SMALL BUSINESS OWNER NEEDS THIS CATEGORY.”

    Thank you.

    • jesse

      Hi Edwin,

      I feel like I should discuss quarterlies in a separate blog post. Hopefully I can get one done this week and have it go out early next week, if possible.

  9. Andrew

    Regarding the non-YNAB category, doesn’t it get messy at tax time to have all of these distributions?

    • Shane

      In my experience, it’s not messy as long as you’re only SPENDING money from the business account on personal things. As long as your business structure is a pass-through entity, anything not spent on a business expense is personal money anyway. The key is to ensure those categories are NOT included on “official” financial reporting.

      In my opinion the bit no-no is mingling business income with non-business income. So, I make sure all business income and all business expense is handled ONLY through the separate business accounts. I may spend personal money from the business account, but this doesn’t affect anything from the business side except how much is in the bank. I just decided it would be no different from me writing myself a check from the business account, depositing it in the personal one, and then spending it. As long as I track it properly and ensure my personal spending still gets categorized properly for my personal needs, and exclude that spending from my “how’s my business doing” P&Ls, my accountant has never had a complaint.

    • jesse

      They’re all just lumped together as distributions. Except for the quarterly payments, where those are obviously entered as taxes already paid.

  10. B Pruett

    When you distribute your income to other categories and enter the negative value to transfer from one category to another, how do you look back later and know what you did? Is there a history log somewhere that I don’t know about, or is that not an important thing for you to track?

    • jesse

      I suppose I could leave a note in that Budget cell, if I felt it needed to be tracked. Right now all I do is move the revenue out of the revenue categories and back up to available. So the amounts in those revenue category budgeted cells always matches the amount inflowed (in the spent column) for the month.

  11. CB

    This post is very helpful and timely for me, Jesse. Thank you.

    Although I wasn’t convinced that having a separate business budget would make my life easier, I decided to give it a shot anyway. It may not make my life easier yet, but I do believe it’s what’s best for my business.

    I was struggling with the category setup because I was hesitant to stray outside the IRS categories for tax-time simplicity, but this post has made me realize that one undoubtedly needs the categories that work for their specific business.

    Thanks again!

    • jesse

      Your accountant can easily match whatever categories you choose, to the categories on tax forms. I may do a post specifically about that, or invite our tax adviser to write a post on how he takes my YNAB data (and many other businesses that use YNAB as well), and files their taxes for them. He’s just still pretty busy at the moment :)

      • Robert Lilly

        +1 to this idea! When I originally set up my QuickBooks categories I did it by working backward from the Schedule C. Now when I export to TurboTax things are simple. Doing taxes is the main fear I have of moving to YNAB exclusively for my business.

  12. cwright242013

    What the heck are QUARTERLIES?

    Is that the payroll taxes? Also I don’t see any payroll expenses line items.

    I have a category for my paycheck where I break down the net, FIT, Medicare and Social etc.

    How do you handle paychecks with your system?

    • CB

      I believe his Quarterlies category is for the Estimated Taxes a small business owner has to pay quarterly.

    • jesse

      For handling paychecks, I record whatever happens in our checking account (because YNAB cares about the cash). Any detailed payroll reports are maintained by our payroll processor.

      There’s an outflow from our checking account for:

      Payroll FICA taxes withheld from employees’ paychecks, and the other half paid by YNAB.
      The net deposit made to employees’ accounts (direct deposit).
      The fee paid to our payroll processor.
      And the amount paid to our 401k. This amount is comprised of employee contributions, and YNAB’s contribution on their behalf. I get the split from our payroll cash journal report maintained by our processor.

    • jesse

      Absolutely! If you want to create a budget for your business, you just go to File -> Create a New Budget and you’ll be off :)

  13. Richard

    Jesse — A lot of the links in this post are pointing to your C: drive (i.e. upgrade, invest, Betterment, Rule Four, excellent online classes, etc). Not very useful.

      • Richard

        Are you using the Website version of the Blog or the Email? I guess I should have been more exact. It’s the links in the Email I received on Friday 4/18 that do not work. I don’t usually read the blog on the website unless I’m re-reading an old entry. I read the email first and if I feel the need to comment then I go to the website.

      • jesse

        Ah, thanks for letting me know Richard! I’ll make sure to use the full links in blog posts going forward. I’ll bet the automatic email that sends out blog posts (to those subscribed) isn’t handling my use of just the relative URLs!

  14. Richard

    Jesse — Amazon is still selling your book. At $5.39 for the paperback version. Even with the Kindle version being only 0.99 cents how are you tracking the sales without an active category?

  15. Rutlandish

    Jesse,
    I didn’t see this question in the comments yet…

    How do you handle tithing/non-profit giving in your small business budget? Does it belong there, or should we only handle tithing/giving in our personal budget (following a “sharholder distribution”)?

    From a tax perspective, is it a mute point?

    Thanks! This was definitely one of the MOST helpful YNAB blog posts ever.

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