Want to stop guessing where your money’s going? This guide shows you how to build a Xero Budget that actually helps you run a profitable small business.
When most small business owners hear the word budget, it’s not exactly exciting. After all, you didn’t go into business to spend your days buried in spreadsheets.
But here’s the reality: if your cash flow feels unpredictable or you often find yourself thinking, “I should have more money than this,” the solution could be a well-structured Xero Budget.
A budget isn’t just about staying out of financial trouble—it’s about gaining clarity, confidence, and control. And with the right setup in Xero, you don’t need to be a finance expert to stay on top of it.
Budget for Small Business Success:
Before we get into the “how”, let’s quickly tackle the “why”.
A proper budget for small business isn’t about penny-pinching or cutting your morning coffee. It’s about:
- Understanding your income cycles
- Planning for big expenses ahead of time
- Spotting shortfalls before they hit
- Making informed decisions (not panic ones)
One of our clients, Rachel, runs a landscaping business here in Queensland. She was booked out months ahead, but always short on cash. Once we built her a Xero Budget, she could see exactly which months dipped in income—and finally stopped losing sleep in winter.
Xero Budget Basics: Let’s Get You Set Up
You don’t need fancy training to get this right. Just follow these steps and you’ll have your budget up and running today.
Step 1: Find the Budget Manager Tool in Xero
Once you’re logged into Xero:
- Go to Accounting
- Select Reports
- Scroll to Planning
- Click Budget Manager
If it’s your first time, it’ll prompt you to create a new budget. Go ahead and hit New Budget.
Step 2: Choose Your Budget Period
Pick the start date (usually the first of this month), and choose a 12-month window. Creating a budget for a full financial year is ideal. This gives you a full picture and helps you anticipate future costs like insurance renewals or tax payments.
Pro Tip: If your business is seasonal, plan for those ups and downs. Rachel’s winter slump? We built that into her income forecast.
Step 3: Use Tracking Categories (Optional)
If you already use Tracking Categories (for departments, teams, or locations), you can assign budgets to each. For example, a plumber might budget separately for maintenance work vs. new installations.
Don’t worry if you’re not using these —they’re optional.
Step 4: Add Your Income and Expenses
You’ll see your chart of accounts listed down the left—things like:
- Sales
- Wages
- Rent
- Marketing
Across the top are the months. Enter your estimates manually or click Auto Fill to:
- Copy last year’s actuals
- Use this year’s data
- Evenly distribute income and expenses
- Customise values month by month
Example: Rachel knew fuel costs would spike in spring when her team did more travel. We added extra to the “Motor Vehicle Expenses” line in those months.
Step 5: Add One-Off or Irregular Costs
Don’t forget things like:
- Annual insurance
- ATO obligations
- Staff bonuses
- Equipment upgrades
Look back at your reports from last year to help forecast accurately.
Step 6: Save and Review
Click Update and you’ve got a live Xero Budget.
But the magic happens when you actually use it.
Turning Your Xero Budget Into a Decision-Making Tool
Compare Budget vs. Actual Each Month
Xero automatically compares what you planned with what actually happened. You’ll see:
- Green = Under budget (nice work)
- Red = Over budget (time to investigate)
This helped one of our clients catch a recurring software subscription she forgot she signed up for—$200/month saved instantly.
Adjust and Improve as You Go
Your Xero Budget isn’t set in stone. Tweak it based on:
- Market conditions
- New team members
- Increased sales targets
- Price changes
In fact, reviewing your budget monthly is one of the best habits you can build.
Export and Share Your Budget
Want your bookkeeper or business partner to see it? Just click Export, and Xero will generate an Excel file you can share or present in meetings.
What Makes a Good Budget for Small Business?
The best budgets are:
✅ Realistic – based on actual figures, not hopes
✅ Flexible – you can adjust when things change
✅ Monitored – checked regularly, not once a year
✅ Actionable – they help you decide what to do next
Budgeting Mistakes to Avoid
Don’t fall into these common traps:
- Guessing income without data
- Forgetting GST or tax on big payments
- Not factoring in your own wage
- Ignoring one-off bills like WorkCover
- Failing to actually use the budget
Where Xero Budgeting Fits Into Your Bigger Picture
Creating a budget in Xero is just one part of getting your business finances under control. Want to go further?
👉 Check out our full Small Business Course
We also wrote a blog post you might like:
➡️ How Small Business Can Improve Profitability in 6 Simple Steps
If you’re ready to dive into budgeting but still feel a bit overwhelmed, download our free guide here:
✨ Download Free Small Business Guides
Or if you’d prefer to walk through it one-on-one with a real person, book a quick chat with Janelle here:
📅 Book a Meeting
