Budgets & WIPs Reporting

Using Budgets to Drive Accurate Work in Progress (WIP) Reporting

Running a company is hard. And reading financial statements can sometimes make it harder. So hard, in fact, that they come with their own set of rules and vocabulary that often seem to complicate rather than clarify. For most people, debits and credits don’t make intuitive sense (unless you’re a born CPA, of course). And it’s hard to understand how your day-to-day decisions will impact your financial statements. That’s where budgets come in—the unsung heroes of running a company.

Budgets: The Decision-Making Tool

Unlike standard financial statements, budgets don’t have to conform to rigid accounting rules. Financial Statements are meant to make it easier for people outside the business to understand the business. This forces businesses to comply with GAAP rules, making their financial information conform to rules that arrange the information in a very standard way. Budgets don’t have to comply with these rules, and information can be arranged in ways that help make sense of your day to day operations. They can track not just dollars, but anything that matters—hours, machine time, out-of-pocket expenses—whatever drives your business.

For example, consider a catering company trying to increase profitability. Their budget could track labor in hours, ingredients in dollars, kitchen time in hours, and rentals in dollars. They might also want to break this down further, tracking these elements for each course of the menu they are preparing. This detailed tracking provides a clear view of the resources required for every aspect of the job, making it easier to spot inefficiencies or opportunities for cost savings.

Without a Budget, You’re Managing in the Dark

Making a budget can seem like a colossal amount of work without a lot of payoff, but without it there is no way to track changes and decisions. The best budget tools not only show you your plan, but let you track when things change. Without this, you can overspend without intending to.

Here’s an example using the catering company:

For a big wedding, the catering company goes with a new vendor for the linen rentals, cutting the budget in half on that line item and putting $10K back into the budget. The chef hears about this and ups the quality of the seafood for the appetizer by $10K. The event planner also hears the news. They decide that they’ll have the quartet start playing a half-hour earlier during the reception and will add vases to all the centerpieces, adding $10K to their budget lines. So now, a $10K savings has turned into a $10K overage because of a lack of communication, resulting in the same money being spent twice. 

With a budget tool in place that helps to facilitate communication, this issue would get flagged before any of the money was actually spent. The project manager would see that both the chef and the event planner were going to make changes and would be able to stop one of them before it was too late.

Who Has Access to the Budget?

While many companies reserve full financial statements for upper management, it’s beneficial to grant key decision-makers access to relevant parts of the budget. By doing so, they can react quickly to changes—like rising ingredient costs, overtime expenses, or other daily challenges that can inflate costs. They don’t need to see the entire financial picture to make impactful decisions that contribute to the company’s overall profitability.

A well-designed budget tool can be tailored to show only the information each user needs to manage. This focused approach ensures they aren’t overwhelmed or distracted by elements outside their control, empowering them to make informed decisions without unnecessary burdens.

From Budget to WIP: Pulling the Information Together

Now, imagine using this detailed budget information to inform your Work in Progress (WIP) reporting. In any project-based business, estimating and projecting the final cost of a project is crucial. Getting it right can lead to a profitable year; getting it wrong could be catastrophic. 

Project-based businesses use WIPs to figure out how much revenue to recognize in a period. In the simplest of terms you take how much time and money you’ve spent on a project and compare it to the total time and money you expect you’ll spend to finish the project. This gives you a percent complete. You then take that percentage and apply it to the total amount you are going to get paid for the project and that is the amount of revenue you recognize in the period.

While project-based accounting solutions do a great job of telling you how much you’ve already spent, they often fall short in forecasting what you will spend. This is where your budget becomes invaluable. By pulling information from various sources—timesheets, out-of-pocket cost tracking, internal machine time, and accounting data—you can create a WIP report that not only reflects where you stand but also projects where you’re headed.

If you’re using a tool like FileMaker Pro to build your budget system, you can link it to other software solutions, like Jira, QuickBooks, and Clockify, allowing for real-time reporting of total costs to complete. This means less restating of earnings, more accurate cash projections, and the ability to judge team performance against forecasting and actuals. In turn, this helps you make informed decisions about the types of projects you should pursue in the future.

Powerful Tool for Real-time Decision-making

Incorporating your budget into your WIP reporting not only streamlines your financial tracking but also provides a powerful tool for real-time decision-making. Whether you’re measuring hours, dollars, or machine time, having a detailed, flexible budget that feeds directly into your WIP report gives you a clear picture of your project’s trajectory. And in the fast-paced world of project-based businesses, that clarity can be the difference between a successful year and a financial disaster. Building a custom budgeting tool using FileMaker Pro can integrate seamlessly into your operating habits and can increase your profitability by helping you and your team make better decisions.