By Marcy Marro
With the end of the year quickly approaching it means it is time to start reviewing this year’s financials and start planning for next year. Creating a budget allows a clear plan to get your business where you want it to go in the next year. By providing a guideline for your business’s expected income and expenses, a budget also provides a comparison of your anticipated financial goals and the actual numbers.
“You know the old expression, ‘If you fail to plan, then you plan to fail,’” said Jeffrey Scott, green industry business consultant and president of Jeffrey Scott’s Landscape Success Systems, Trumbull, Conn. “If you don’t have a budget, you’re basically winging it. You are assuming that your business doesn’t change much year to year; but this is no longer the case.”
To develop a thorough picture of what your business is going to look like over the next year, you need to consider how the company performed during the past year, and then think about where you want it to go in the future. Are you interested in offering a new product or service? Expanding into a new market segment? How do your rates compare to those of your competitors?
When looking at your operating expenses, make sure to include all aspects of running the business, including the costs of the goods or services that you offer; the cost of advertising and marketing to generate sales; your payroll, including all salaries, wages, employee benefits and workers’ compensation insurance; the cost of any facilities and equipment, such as the leasing or owning of office or storage space, utilities, equipment rental or purchase fees, repairs and maintenance, and property insurance. Also included in operating expenses are professional services such as legal services, technology and accounting, as well as financial services such as bank fees and interest on bank loans.
While some companies may depreciate equipment faster than they legally need to, Scott recommended following the normal depreciation set forth by the government unless your experience dictates otherwise. “With equipment, it is important to do scenario planning,” said Scott. “There are different scenarios with equipment and winter’s the time to play some of those ‘what if’ games and come up with better ways to manage your equipment.” From leasing versus buying, one brand of equipment versus another, an in-house mechanic versus an out-of-house mechanic, it’s beneficial to look at your options and see if making some changes can save you some money.
When it comes to overhead, Scott suggested starting from scratch each year. Don’t just assume your costs are the same each year, go out and re-bid them. From insurance to equipment, your needs may have changed over the course of the last year, and it is beneficial to make sure that you are still getting the best deal for the type of coverage that you need. The same goes for your admin, sales and marketing don’t take for granted that you need to spend the same last year that you spent this year. You may need to spend less, or more.
Add marketing to the mix
Even in a tough economy, it is important to not forget about marketing and advertising your company. “It is imperative to the lifeblood of your business to have a marketing plan that will give you a barometer of where you want to go to grow your business and build your brand amongst your competition,” said Tony Calvert, marketing director at Tree Management Systems, Inc., Ellettsville, Ind., makers of ArborGold software.
Calvert is a proponent of having a “marketing matrix,” or yearly forecast of what you’re marketing, how it is being marketed, what vehicle is being used to send out the marketing, who it is being marketing to, and how much is being spent on marketing.
“You’ve heard it before, but it bears repeating: You have to spend money to make money,” Calvert said. “Your marketing efforts have a direct bearing on your revenue — it’s no good being penny wise but pound foolish. The trick is to spend wisely. A tailored marketing plan that will fulfill your company’s goals will recoup far more in increased revenue than you would have saved by not investing in it.”
Calvert said that while marketing budgets vary by industry and business size, for tree care, lawn care and landscape companies, a good gauge is about five to eight percent of a company’s gross sales.
According to Calvert there are two main points to consider when setting up a marketing budget — the development or refinement of your brand, along with the channels used to promote it, and the ongoing expense of promoting and advertising your brand to your customer base and your prospects. “Successful and highly profitable small business owners know how to allocate adequate funding to marketing each year,” Calvert said. “Small businesses realize that marketing, if done properly, brings back solid returns and vice versa — whereas not allocating enough in your budget for marketing could spell disaster.”
A team project
In addition to holding yourself accountable, a budget can also help you get buy-in from your team, Scott explained. He recommended allowing employees to help create certain parts of the budget, such as tools, manpower planning and sales, to give them a better understanding of what their role is in the success of the company. By understanding the costs that go into the business, employees can better understand the company as a whole, giving them confidence in what they are doing and allowing them to become better promoters and salespeople for the company.
An ongoing planning tool
Scott recommended tying your budget into your long-term goals, whether it’s expanding your business, transitioning from one generation to the next, or even taking some time off as a business owner. Since there are often extra expenses tied to your bigger plans, it is important to have a clear understanding of long-term goals when creating your budget.
A budget is a guideline for where you want your business to go in the next year. Evaluate how you’re doing each month, comparing your actual numbers with the budgeted ones, and making changes when necessary. Your ability to manage your business “month by month” will have a great impact on reaching your profit goals by year end, especially in an uncertain economy.
Marcy Marro is audience development marketing manager, and a contributing editor, with M2MEDIA360, publisher of Arbor Age magazine.