Money

Six Steps To Successful Budgeting

Lexi Tucker
Posted on March 6, 2020
Tracy Fickett of Bus Books, a CPA accounting firm dedicated to the ground transportation industry, presented six steps operators can take to get their budget in order.

Tracy Fickett of Bus Books, a CPA accounting firm dedicated to the ground transportation industry, presented six steps operators can take to get their budget in order.

ATLANTIC CITY, N.J. — Every business needs a budget. You should already be aware of that. However, are you following the steps you need to be taking to work effectively with said budget?

Tracy Fickett of Bus Books, a CPA accounting firm dedicated to the ground transportation industry, hosted a session called “Budget Workshop: A Practical Approach” at the 2019 LCT East Show in November that focused on looking ahead and correcting your trajectory to make sure you stay on track to have a successful year and learn from your mistakes.

Don’t Fear The Budget

The first piece of wisdom Fickett shared is “don't fear the budget.” “Anything we don't understand, we get scared of. When we break it down into small pieces, it's manageable,” she explained. She focused her presentation on the importance of budgets, as well as six steps to create and use a budget properly.

Budgets are vital to plan for your future performance. You don’t do it just to be able to check it off your list. “If you don't use it, it's just going to be that: An exercise and something you put off on your to-do list. It’s not really going to be helpful to you if you treat it like that.” The future of your company is not something you want to leave to chance.

“Many years ago, I ran a couple of 5ks. I ran a 10k. I quit running. I really think it would be nice to get back in shape and be able to do that again. But unless I have a plan, I can't accomplish that. So, my plan is I'm going to go out and download one of those training plans. That training plan I'm going to download is like a budget to your company. Benjamin Franklin said, ‘If you fail to plan, you're planning to fail.’”

Six Steps To Budgeting Success

Step one: Determine your goals (Photo via pixabay user stevepb)

Step one: Determine your goals (Photo via pixabay user stevepb)

1. Determine your financial goals

Develop your financial projection. What do you want to accomplish as a company? Do you want to set a higher sales goal? Do you have a net profit goal? What do you want to achieve? All businesses want to put more money their pocket. “There are a lot of small companies that make a lot of money. There's a lot of big companies that gross a lot of money, but don't necessarily make any net income,” she explained. You might want to increase a specific segment of your operation or reduce workers' comp expense. Whatever you want to achieve, you’ll need a budget to see results.

“Remember: If you can’t measure it, you can’t manage it!” - Tracy Fickett of Bus Books

2. Determine other relevant factors

This includes situations you can't control. A new competitor opens next to you that will seriously affect your business. You could have fuel price fluctuations, rent increases, labor shortages, and/or wage increases. Fleet replacement or expansion is another factor to consider along with ripple effects. These are situations that happen because of another factor…much like a domino effect. 

“For instance, I want to increase my sales. I'm not raising my rates; I just want to increase my volume. I want to find a way to boost sales in non-peak months. When I do that, my driver wages are going to go up just based on volume. That, in turn, causes an increase in the use of fuel, payroll, taxes, workers' comp, and tolls. If your sales increased so much by volume that you need new equipment, that’s yet another line item to account for.”

3. Develop budget based on all information

Start with your prior year’s information as a base. Take that number and use it to plan based on all the above factors you’ve considered.

4. Monitor the results periodically

Be sure to keep an eye on your results! (Photo via pixabay user nattanan23)

Be sure to keep an eye on your results! (Photo via pixabay user nattanan23)

You’ll want to do this regularly. Don’t just make a budget and then put it in a filing cabinet and never look at it again — that won’t help you.

You can certainly do this by hand, but Fickett doesn’t recommend it. Some programs such as QuickBooks will allow you to put budgeted amounts in and enable you to print a budget as a report. When you're going to use that approach or any approach that's broken into regular intervals such as monthly, you will need to break up your budget amounts for the time periods.

“You might have a total $3 million in sales on your budget, but you need to break it down by month. If your business is stable throughout the year, you can use $3 million divided by 12, right? And if it's not stable throughout the year, if you do 20% of your business in January, you want to assign 20% of the sales to that month. And so, after you develop an overall budget, you'll need to factor in some seasonality.”

You need to set aside time to crunch numbers. It’s understandable you have “operational fires” that take priority at the time they're happening. However, it’s important to schedule time every month or so to make monitoring your budget a priority. If you have an assistant manager or another “right-hand” person, have them take over and block off however much time your experience tells you you’ll need to get your numbers in order.

5. Evaluate the results – find out the why

Evaluate what went right and wrong, and you'll be A OK (Photo via pixabay user mohamed_hassan)

Evaluate what went right and wrong, and you'll be A OK (Photo via pixabay user mohamed_hassan)

Let’s say you wanted to hit a sales total of $300,000 this year but came in at $250,000. You must ask why. Why did you fall short? On the flip side, if you met your goal, you should be analyzing what made that happen. What did you do right? Write it down, because you’re not going to remember in six weeks. Did you have fewer trips? Did you earn less per trip? Break down some of those metrics so you understand what happened.

6. Take Corrective Action

This step is where you make changes so you can get back on track to where you want to be. Some industry examples of such would be to adjust discretionary spending if your net income is not coming in where you want it.

You can make revenue pricing adjustments. Are you selling trips for too little? Too much? Depending on seasonality, the answer could be either one. Do you need to do some more sales training? Are your salespeople just not closing? Is it a marketing effort issue? Did you drop Facebook advertising or your pay-per-click? Troubleshoot to discover the cause of whatever drops in revenue you are experiencing and do your best to remedy the situation to get back on track to achieving your goals.

Related Topics: 2019 LCT East, finance, financial planning, LCT Events, LCT Events Education Series, money

Lexi Tucker Senior Editor
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