If you use a bookkeeping program such as QuickBooks, preparing a budget is as simple as clicking a mouse a few times. But even if you don't use a program with a budgeting feature, it's imperative to project fixed and variable expenses realistically to determine your 2004 profit and income goals.
It seems obvious: You can spend money only if you earn it. Start your budget by listing fixed overhead expenses per month and then estimate other overhead and direct expenses based on realistic revenue projections.
But predicting remodeling revenue 12 months out is akin to mapping a cross-country journey. You would have met your mph projections if only floods in Mississippi hadn't slowed you for three days and then carried your car downstream.
It's imperative that you use your budget regularly throughout the year. If revenue and profit projections are missed, for example, you can make spending decisions more rapidly and wisely. Let's say you budget $20,000 in 2004 for capital expenses such as new equipment based on revenue and profit assumptions. If you start slowly in the first quarter, you should revise projected capital expenses downward. Similarly, if you exceed budgetary projections for the first half of the year, you might be able to institute that small company pension plan you've been considering.
Budgetary adjustments prompted by revenue shortfalls or overages are one reason you might want to budget discretionary spending for late in the year. If the funds are available, they can be spent. If your company does not operate as planned, those expenses can be postponed.
Remodelers have told me even a month or two into a new year that they did not know how well or poorly they had done the previous year. The conversations have gone something like this: "How'd you do last year?" Answer: "I don't know. I'm waiting for my accountant to get back to me."
Successful remodelers know that the days of waiting for someone else to measure their success are over. Your accountant might put entries into the appropriate boxes on the appropriate tax forms, but you need a working document detailing whether you have sufficient capital to fund your budgeted needs. Control of that information begins and ends with you.
Examine your expense and revenue numbers for last year. Enter a realistic income figure for yourself and a realistic profit goal for your company. Adjust everything for inflation. Based on your recent gross profit percentages, calculate how much revenue you need to book to make all of those numbers fall into place and then build your marketing plan accordingly.
As you go through 2004, keep posting actual expenses next to your budgeted figures. Adjust your spending as necessary (including spending more on marketing if you need to boost revenue) and keep a close tab on the numbers. When all is said and done, you won't have to wait one day for your accountant to tell you how you did. Long before the year ends, you'll already know that.
Stan Ehrlich can be reached at email@example.com.