Advice for Volatile Cashflow Salary/Draws using Biz and Personal Budgets
I own a small business. I'm using YNAB for personal (Still learning), and I've now set up a separate YNAB business budget. I have questions that are both 'philosophical' and 'how-to-YNAB.'
- All personal and business accounts are separate.
- I'm in client services.
- Revenue comes in large chunks but is meant to cover many months. For example, 50% of revenue on a six-month project is paid on month one, and then 50% on month six.
- Some years I have more clients than others, and it's tough to predict. I'm working on that (Aren't we all), but it's mostly the nature of the beast with what I do.
- My expenses are stable and don't change much.
- I pay myself a base salary and then take owners draws when I can (Which I usually can).
- As a result, I don't have an entirely "predictable" salary.
Accordingly, in an app like YNAB (Or at least, how I understand YNAB at the moment), I'm not sure...
- What to do with (How to categorize/where to put) those big influxes (The aforementioned (50% checks) of revenue in the business budget,
- And how to best budget with an unpredictable salary.
For #1, getting a "50% check" makes my biz budget look like I have a lot of money "to be budgeted" for that month, when in reality that money needs to cover months worth of expenses (And the YNAB budget categories are mostly the same each month). Should I create a tracking account and move money into there for future months? Or maybe create a "Future Budget" category or something?
Answering the above *should* help me answer this (Right?): If I know how much my monthly expenses are, how can YNAB help me more quickly determine how much draw can I take each month/quarter and still have a safe buffer for the biz account?
For #2, it's almost the same question: I get an influx of owners draw that needs to pay a few months' worth of bills. So, let's say my monthly budget costs $5.00 / month (hah!), and I get a draw of $15.00. It looks like I have $10.00 "to be budgeted," but in reality, that's just supposed to cover the next two months.
Which leads me to my last question: advice on how to handle salary with a volatile cash flow business? My base salary is predictable, but after that, it's not. I'm debating setting up a recurring owners draw that makes it appears as though we have a more predictable salary for budgeting purposes.
Any and all advice would be welcome. Thank you for taking the time read this!
Your intuition is correct. Commonly called a Deferred Income category, it's a place to stash funds when you get excess and supplement from when you don't.
If you're paid $6000 and you expect the next payment in 6 months, stash (budget) 5/6 in the category (leaving 1/6 to budget now). In each of the next 5 months, budget -$1000 to pull funds from the category.
The point is the rest of your budget always targets that $1000 outlay.
Note, this is separate from any emergency fund. The purpose of that is to handle unanticipated expenses. Every penny of the $1000 should be planned (possibly increasing the EF with some of it).
Thank you dakinemaui
So if I'm reading this correctly...
1. I create a new budget category called something like "Deferred Income," correct?
2. Now for my YNAB newbie question: from here on in, will I need to manually move money (as explained in YNAB helps docs here) from "Deferred Income" to each category for the subsequent months? For example, if "Deferred Income" will be spread across a number of different categories (i.e. Mortgage, Groceries, Auto Loan, etc.), will that make my YNAB life more labor intensive? Or, is there a way to make that more automatic somehow, by telling YNAB, "Hey, pull money from the overflow in 'Deferred Income'")? Am I explaining this adequately? And if this line of questions is based on false assumptions about YNAB, please let me know.
Thanks a lot for your help.