In the fourth quarter of the year, there are two things landscapers should be working on: first, closing out the fourth quarter strong and, second, ensuring that their financial budgets for 2016 are in order. “In order” means contractors have reconciliated budget estimates and actual numbers so the figures can be valuable information for next season’s budget. If you have not used budgeting as a tool before, now is the time to start understanding the value of building an operational budget.
Budgets are difficult to plan and maintain at the best of times — unexpected events, cash flow problems, client issues and more can all reap havoc with even the most thoroughly planned business budget. The other problem with budgets is that many landscapers set up budgets at the beginning of the year and then file them away until the year-end rolls around once more. And this is where the problem lies: Your business is never static, and your budget shouldn’t be either.
Here are some tips for building, using and managing a better budget.
Budgets are enormously important to the operation of your business; not only do they help you manage your costs, but they also help you determine whether your profit goals are within reach and keep you on the right road from month-to-month.
In its simplest form, a budget is a detailed plan of future receipts and expenditures. Think of a budget as a tool for providing control. For example, by looking at next quarter’s budget, you can anticipate peak periods and schedule stock and labor to handle the sales volume. You can also plan capital purchases, new hiring, marketing activities and expansion of your business.
Companies that have not used budgeting as a tool for managing their businesses should start off by simply identifying the profit they want to make and then listing out the expenses they’ll incur in order to reach that goal.
Update your budget monthly
If your budget is going to work for you, plan on revisiting it on a monthly basis with your management team and update it based on your business performance and expenses for the prior month.
We call this a “floating budget.” Take a look at your sales forecast — how’s your pipeline looking? Are there any indicators that you need to make changes to your budget to cover additional equipment or material expenses or perhaps staffing needs? Look at your expenses — are they as projected or do you need to cut back in certain areas to ensure you stay on track? Looking at the “estimated to actual” and the “ebb and flow” are critical factors in honing in on building and managing a functional budget.
Make changes that can have a positive impact
Based on your monthly review of estimated to actuals, make changes to your budget and then wait to see what impact these have for your income and profits by month and by year.
For example, perhaps you are under-investing in marketing. Adjust your budget and see what happens to your pipeline next month or over a six-month period. In your next review cycle, look to see if you are getting a good return on marketing dollars spent per sales lead. Then use this information to inform future planning decisions about where best to allocate your costs.
What about receivables? Are there ways you can speed up your invoicing and payment cycles to keep cash flowing into the business? These are simple questions that have a positive or negative impact on your budget and help you respond to unexpected changes.
Budgeting for the unexpected.
We are in an industry that has many variables. Say, for example, an important client cuts their own budget and reduces the amount of business they do with you by 20 percent or more. Take a look at your budget and how this reduction in revenue affects your cash flow and for how long. Ask yourself: “How long will it take to find a new client to replace that important revenue source, and what will it cost in terms of marketing or hiring costs to help uncover new business?”
Don’t give away the house; tie incentives to budget performance.
A great way to get your key contributors onboard with the idea of focusing and interacting regularly with the budget process is to tie performance bonuses to it. At the beginning of the year when you plan your annual budget, set parameters for performance tied to profit. This can happen at multiple areas of the landscape business including sales and operations.
Be smart — use a budget.
Running your business without a budget is like walking into the casino and thinking you’re going to win a million dollars.
Take it slow; the first budget won’t be perfect and that’s OK. The most important part is understanding its purpose and the process will follow. There are many software programs available into which you can plug in the numbers, or you can simply use a common spreadsheet tool like Excel to build your budget.