A budget is an ESTIMATE of all revenue (“money in”) and expenses (“money out”) with profit (“money left over”). It is a forecast for a twelve month period of sales revenue, and the costs associated to support those sales.
Why Do You Need a Budget?
Budgets help you estimate your current needs, future needs (as you grow), spending and cash flow needed each month. A budget will help you be proactive in managing your business so you are not reactive in managing your business.
10 Reasons Why We Budget
1) To set goals and expectations
2) To have a tool to measure actual performance against
3) To anticipate and plan for cash needs
4) To set triggers to buy equipment, vehicles and hire employees
5) To establish trends to manage and forecast with
6) To project performance to use to obtain loans or establish credit lines
7) To help you utilize the P&L data – actual to budget to assure profitability
8) To project net sales needs to grow—current sales, plus new sales, less lost work
9) To set goals for managers to reward for performance beyond expected–Bonus
10) Because you agreed to …………
Using a Budget
A budget will indicate:
· The amount of revenue needed to support business operations
· The cash needed l to support labor and/or materials expenses.
· Equipment expenses and purchases
· Projected profit
Reviewing a Budget
After reviewing your preliminary budget and you see the expenses are greater than the revenue, re-examine your budget by:
Ø Reviewing your expenses (labor being the largest) are they accurate of past performance?
Ø Are there expenses you can reduce or eliminate?
Ø Increase your revenue by projecting more remedial or irrigation services with the same number of employees.
Ø Check to see if your profit is really obtainable.
Ø Are you within the standard percentage for this industry?
Keep This Equation in Mind
— (MINUS) –
TOTAL OPERATING COST
= (EQUALS) =
PROFITS = SUCCESS
SUCCESS = SUSTAINABILITY