Money

How To Plan Your 2019 Budget

Jim Luff
Posted on January 3, 2019
It's important to keep a close eye on your income and expenses.
It's important to keep a close eye on your income and expenses.

Just as families budget for home management, setting a budget for your business is important for financial health and growth. Here are the basics:

Looking At The Past

Before you can look to the future, you must peer into the past. Hopefully you kept good records of your income and expenses by each month in the current year. It’s likely your revenue and expenses will be similar on a monthly basis. You should be doing profit and loss statements each month. They serve as a roadmap to your future and as a month-by-month forecast in the coming year. Use your P&Ls to create a monthly forecast to establish an expense budget based on a combination of fixed payments such as mortgage or rent, vehicles, insurance, and loans.

Forecasting Revenue

Your expense budget should be based upon how much you expect to earn in a given month. Examine each month’s revenue for special events that may have occurred and inflated your revenue. Look for future events that may increase your revenue in a given month. Factor in rate increases, new services offered, and new vehicles that will provide additional sources of revenue. If your revenue grew this past year compared to the same period in the previous year, determine how much it grew and add the percentage of growth to your future revenue projections.

Part #1: Fixed Expenses

Fixed expenses mentioned above are easy to calculate and plug in to your budget. This is commonly referred to as “the nut.” This means you must make this much money each month just to survive. Make a list on your monthly budget sheet of each fixed expense and then subtract this amount from your projected revenue to see how much you have left for Part #2.

Part #2: Variable Expenses

Many of your expenses such as the cost of fuel, payroll, farm-outs, and even utilities are variable and increase or decrease with the amount of work you are doing. Since you can’t define this with a fixed number, they should be expressed as a percentage of your revenue.

For example, if you did $100,000 in sales in August and your fuel expenses were $22,718, your fuel cost was 22.72% of your total revenue. If your projected revenue for the same month next year is $105,000, your fuel expense would be estimated at $23,856. However, to stay on track with your budget or spot potential problems such as fuel theft, monitor the expense percentage against actual revenue as opposed to the projected dollar amount.

Savings Account Deposits

If you don’t have a savings account, you should open one and deposit a percentage of your revenue each month. Even if you only put in .5% of your total income, on a projected monthly income of $100,000 you would put away $6,000, which could come in handy for an unexpected collision deductible or major mechanical failure. You must discipline yourself to do this. One of the best ways to handle it is to set up an automatic monthly payment to your savings account.

Categorize

Create budget expense categories such as payroll, vehicle operations, and facilities. Create sub-categories under each for specific expenses. For example:

Payroll Expenses

  • Payroll
  • Worker’s comp premiums
  • Federal tax
  • State tax
  • Employee benefits

Facilities

  • Mortgage/rent
  • Trash removal
  • Janitorial
  • Utilities
  • Property insurance
  • Maintenance/repairs

Other Considerations

The price of fuel fluctuates. What you are paying today is likely to be less than during the summer months when fuel prices tend to rise.

Look for expenses in the past year that were a one-time expense such as a major vehicle repair/overhaul or an accident that caused out-of-pocket expenses such as vehicle rentals, deductible payments, increased farm-outs, etc. Do not include these in your budget.

Great Ideas provides a broad range of information focused on new ideas and approaches in management, human resources, customer service, marketing, networking, and technology. Have something to share or would like covered? Contact LCT contributing editor and California operator Jim Luff at [email protected]

Related Topics: money, operating expenses, revenues, saving money

Jim Luff Contributing Editor
Comments ( 0 )
More Stories
An ROI (return-on-investment) on a moving vehicle is easy to understand, but difficult to keep consistent. (LCT image)
Article

A Walk Through Coach Profits

NOV. LCT: These simple return-on-investment formulas will help you truly see if your buses of all sizes are making enough money.