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.
Use the same process for your “cost of goods sold” (COGS) accounts. Unless you expect to dramatically change your parts procurement practices (new DRP requirements, new discounts, etc.), or change the way your technicians are paid (moving from hourly to flat rate, for example) you can use a similar percentage of sales calculation to arrive at your COGS figures. If your “body labor” costs were $200,000 (or 10 percent of sales) last year, for example, you can budget $210,000 for this year ($2.1 million x 10 percent).
Overall, you should see a consistent gross profit percentage when using your new budgeted figures. If your gross profit was 45 percent last year, then your total budgeted COGS would be $1,155,000 ($2.1 million x 55 percent).
For your expenses, take a hard look at each category and ask yourself whether you anticipate increases (insurance often increases 10 to 20 percent annually) or decreases (fewer legal fees, for example, or moving an employee to part-time). Again, using the percentage of sales figures last year as a starting point, increase or decrease the expected annual total based upon your projections.
So if your “office expense” last year was $8,000 (.4 percent of sales), and you expect to start putting snacks and beverages in your customer waiting area, consider increasing that amount to .5 percent of the $2.1 million in budgeted sales for this year (so $10,500).
Once you have calculated all of the amounts, take a look at your bottom line. Not enough income for the year? Where can you cut back? Play with the numbers using realistic expectations tempered with just enough wishful thinking to give you a positive bottom line.
This is now your new roadmap. Divide your new budget figures by 12 to get simple goals for monthly sales, costs and expenses. Compare your actual results to the budgeted totals frequently to see if you are on track. Don’t be afraid to adjust throughout the year. In addition to an overall budget, a separate budget for each location is also recommended.
Perhaps most importantly: Don’t wait until next year to start. If you haven’t already done a budget for this year, you can get one in place even mid-year. There’s no sense in wandering aimlessly for the rest of the year when in a few hours you can have a tool you can use as a roadmap toward a more prosperous year.
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