Operations

Now Is The Time To Set A Budget

Posted on January 7, 2014 by - Also by this author

Gather up your income and expenses from 2013 and begin setting up a master budget to monitor your progress. Establish benchmarks that can be compared quarterly to monitor your performance of income and expenses.

Basics of Budgeting

Unless you are expecting to land a major contract that will significantly increase your sales, your income and expenses will remain about the same as the prior year give or take 5%. Set a realistic goal for sales increases compared to last year such as 3% to 5%. The expenses of operating a transportation company increase accordingly with sales. The more trips you do, the higher your payroll, fuel and maintenance expenses will be. By setting up a budget of income to expense ratio, you can track each quarter to see if you are on the right path and adjust as needed. You easily can identify expenses that are increasing without corresponding sales.

Income

This is the starting point. You must have an estimate of what you plan to bring in before you can establish a quarterly budget. Although you may have different seasons, you can take your total bank deposits for 2013 and divide by four to come up with your expected income for each quarter.

Fixed Expenses

There are certain expenses that are easier to forecast because they maintain a constant rate. These include bank service fees, dues and memberships, garbage removal, janitorial service, gardening, GPS services, auto and property insurance, professional services, property, airport and permit taxes, mortgage/rent, fixed or hourly salaries of office and maintenance staff, telephone/fax/Internet service, and vehicle payments. Add the total amount you will pay in a year for each of these categories and divide by four to determine your “fixed overhead.”

Controllable Non-Essential Business Expenses

Certain business expenses can be planned based upon actual earnings. An example would be setting an advertising budget based on 2% of total sales.  Capital improvements might be 5%. Perhaps you want to donate 1% of your sales to charity causes. You should factor in education and training such as attending trade shows. A $1,000 convention expense is only $83 a month. Meals and entertainment might be 1% or 5% but have a plan. You should budget for promotional expenses such as employee birthday cakes, lunches and cards if you celebrate those as a company. If you provide uniforms, factor in a replacement cost as they will wear out. If you have exceeded your budget at the end of the first quarter, this is the first area to cut from in the second quarter and get back on track.

Predictable Overhead Expenses

These types of expenses are about the same from year to year and include drug testing, office expenses (paper, envelopes etc.), postage and utilities. Total up how much you spent last year and divide by four to come up with an average amount you can expect to pay each quarter.

Direct Operational Expenses

These are the things that you can’t control but you can establish an expected ratio of cost to income. This includes commissions, credit card processing fees, fuel, worker’s comp insurance, oil changes, parking fees, driver wages, airport fees, repairs and maintenance to vehicles, and vehicle supplies. These should be established either by national averages (see LCT Magazine Fact Book online at LCTmag.com) or prior history. Driver labor should run about 20% of sales. Fuel can range from 10% to 20%. Repair and maintenance to vehicles should be about 3% to 5%.

The Oopsie Factor

There are some unpleasant but necessary items to budget for. If you have a $1,000 insurance deductible, you should be budgeting $84 a month just in case. You also should consider setting aside 1% of your income to a “legal settlement” fund. It is far better to pay out-of-pocket for damage caused by a driver than initiate an insurance claim. You can expect a certain portion of your sales will be lost to bounced checks and credit card chargebacks that you fail to collect on.

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