Budgets and reservations

Before you start, open this page: Cash / Payment Reservations.

Can’t find one? It may be turned off for your business, or your account may not be allowed to open it. Ask the person who set up your FeePrime. They can fix both.

Two tools for controlling money before it is spent, instead of reporting on it afterwards.

Envelope budgets

An envelope budget is money set aside for one purpose.

It has a name, a currency, and a way of tracking, with a goal amount and a minimum level. It also records how often you expect to spend it, a deadline, and the amounts for each period: yearly, monthly, weekly and daily.

The idea is old and it works. Instead of one pot everybody takes from, and a nasty surprise at the end of the month, money is given to purposes.

Fuel gets an envelope. Rent gets an envelope.

When an envelope is empty, the answer is not “but there is still money in the account”. The answer is that this purpose has had its share.

The minimum level is the useful half. It is the point at which somebody should be told.

That turns a budget from something you look at once a month into something that warns you while there is still time to do something.

Payment reservations

A payment reservation sets money aside for something you have committed to but not yet paid.

The problem it solves is one you will recognise. The bank balance says two million, so a manager approves a purchase. Nobody told them that one and a half million is already promised to wages on Friday.

The balance was correct. The decision was still wrong.

A reservation makes the commitment visible before it becomes a payment. It works the same way a sales order sets stock aside before it ships.

The same idea, three times

You have now met this idea three times in this course:

   stock    what you hold      vs   what you can actually sell
   money    your balance       vs   what is actually free
   supply   what is on its way vs   what has really arrived

Every time, the first number is true and the second number is smaller and more useful.

Acting on the first one is how a business promises what it does not have. Goods, or money.

Neither one thinks for you

Budgets and reservations are controls. They are not fortune tellers.

They only know what you record. A commitment nobody entered reserves nothing. An envelope nobody keeps up to date is just decoration.

They earn their keep when several people are spending money. Which is exactly the point where the owner can no longer hold it all in their head.

Try it

On staging.feeprime.com, create an envelope with a low minimum level and spend against it until you go past it. Then reserve part of an account’s balance, and compare the balance against what is really free.