Now is the time of year to focus on your budget for 2020. A lot of us drag our feet when it comes to this task, but it’s one of the smartest actions you can take now to set yourself up for success in the new year. And it doesn’t have to be a daunting effort unless you let it be.
The best place to start is with the big picture. Pull together your data from 2019 and previous years, and then take the next four weeks to build your budget from that.
Week One. The owner and/or leadership team determines the company’s 2020 goals. How much in sales do you expect to do compared to last year? How much gross profit? How much net profit? Try not to get hung up on the details in week one; just get your general vision down on paper and share it with your division heads.
Week Two. Ask each division leader to submit their division budgets based on the goals you’ve shared. Ask them what investments—in trucks, equipment, products, and people—they think they’ll need to make to hit the numbers you’ve set. We often hear owners say they’re going to double their sales in the next year, but that could also mean doubling their trucks, equipment, and people. Can you go from 10 to 20 trucks? From 30 to 60 people? Your budget needs to account for these investments, too.
Week Three. The owner and/or leadership team reviews the divisional budgets. This week is for the tough conversations you need to have about striking the right balance between ambition and reality. The easiest way to do this? Good old-fashioned math and planning. If your goal for 2020 is 10% growth, but a division manager wants to increase their equipment purchases by 30%, the numbers don’t add up.
If you set your sales goal at double what you did in 2019, what is your plan for getting there and how does the math add up? Is it a realistic goal? It may be, but be careful to think it through:
How many hours would you have to bill? With how many team members and crews?
How much are you going to mark up materials or rely on subcontractors? How much will that affect your gross margin and service mix?
What is your prevailing wage and/or average wage?
What mix of services give you the best chance to hit this goal?
What would your average job size or contract have to be?
Week Four. The owner and/or leadership team finalizes the complete budget.
Once you have your budget in place, don’t make the mistake so many companies do of setting it and forgetting it. To really make your budget work for you, you need to consistently review it–look at how you did in previous months and forecast how well you’ll do in the future. The most successful companies review their budgets at least monthly; doing so gives you a quick pulse on how your year is trending and allows you to correct course if need be. If you aren’t hitting your sales goals, then you may need to adjust your expenses. If you’re growing quickly and your sales are up, you may have to increase your expenses to ensure you’re continuing to maintain standards and deliver quality.
Nothing matters in business quite like your financial performance. Put your budget together, work your plan, and consistently review and adjust to win in 2020.
Have a great week!
Vince Torchia
Vice President
The Grow Group
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