Money

Maximizing Profits Starts With Sound Budgeting Practices

Posted on September 20, 2014 by

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Aventura Worldwide CEO Ron Sorci explained how defined, consistent budgets can help limo operators set goals, provide direction, instill accountability, and improve workplace performance.
Aventura Worldwide CEO Ron Sorci explained how defined, consistent budgets can help limo operators set goals, provide direction, instill accountability, and improve workplace performance.

LAS VEGAS, Nev. — If you are like most people, the thought of preparing a budget makes you want to take cover. Ron Sorci, Chief Financial Officer of Aventura Worldwide Transportation Services in Miami, says you need to change that view.

Sorci, who spoke at the International LCT Show in February, explained that good budgets can help you in many areas of your business. He believes that budgets will enable companies to control their resources while signaling responsible management. Budgets set goals that managers can strive to achieve and allow owners to monitor their performance. Budgets will lead to better performance and will hold people accountable, Sorci said.

“Many people ignore the budgeting process and wing it as they go along,” Sorci said. “By doing this, you will only pay for the ramifications of not knowing where you stand in the budget process.”

Creating a Budget
Sorci explained there are three ways to create budgets: Top down, bottom up and zero based.  
“With the top-down budget, the preparer sits in a room and lists every expense and revenue,” Sorci said. “He prepares the budget and then meets with everyone in the organization and tells them what the budget is. This is the worst approach you can use,” he said.

Sorci recommends a bottom-up budget. “With this type of budget, the preparer reaches out to each of the department heads and asks them what they expect to spend in their departments and how they can do better during this period. They then submit the numbers which the preparer uses to put the overall budget together. This type of budget is best received by the employees as they have buy-in since they were consulted when you prepared it.”

The last type, which Sorci also does not recommend, is the zero approach.  In this, the preparer starts with zero and looks at what he ideally will need to run the company.  

Business Plans
“Hand in hand with your budget, you will need a business plan,” Sorci said. “A budget looks at one year while a business plan can look at five or more years.”  

The business plan assesses the business and maps out the future to help companies grow, he said. Business plans are essential for companies that need to secure financing, whether that is a bank loan or overdraft protection.  
Sorci believes that budgets and business plans are living documents that should be constantly reviewed and communicated to the organization. When preparing a business plan, an operator should review constant resources, such as customer satisfaction. You don’t want to cut your customer satisfaction when you cut expenses. If you decide to use smaller cars because they cost less, will your clients be less satisfied with the ride? You need to understand external resources and their needs.  

Return On Investment (ROI)
ROI is the magical number that all companies look at. Sorci believes that companies should have an eight to 13% profit margin with 10% the average. Sorci cautions that you shouldn’t let the figures alone guide you. He says that you should approach ideas from multiple areas and get buy-in from others in your organization. He suggests that you constantly analyze where you stand and what affects your business.
Sorci recommends the following exercises:

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