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Creating a budget to help your company improve financials

Thursday, June 19, 2014 - 07:00
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Ever tried going someplace new without a map? It can be frustrating and time consuming because you can easily get lost. The same can be said for trying to improve your finances without a budget. Without that tool to guide you, it is very easy to lose your way.

Whether you have two locations or 200, the steps for building a simple budget are much the same. First, identify what tool you can use to build your budget. Many financial software applications have a budget tool. You can also use Excel.

You will need some initial data, preferably clean, detailed financial information. As a starting point, I recommend using prior year figures stated in total dollars and as a percentage of total sales.

Begin by looking at your past sales figures to see if there are any trends. Ask what caused the trend and whether it is sustainable or if future circumstances will lead to a different sales environment for your company. Based upon your predictions, project out an annual sales figure.

Perhaps your sales last year were $2 million and you believe your can increase sales by 5 percent. Your budgeted annual sales will be $2,100,000. Using the financial data from the most recent year, apply the percentage of sales figure to the new sales amount to arrive at a total budget for each individual profit center.

So if you had $600,000 in “body labor” sales last year (30 percent of your total $2 million in sales), budget $630,000 ($2.1 million x 30 percent) for this year. The same can be done for refinish labor sales, OEM parts sales, etc.

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