The 'B' Word
Happy New Year! How wonderful it is to have a brand-new year at your feet. What are you going to do with it?
Take a look back at January 2003. Compare where you were then with where you are now. Check your progress. Are you happy with it?
Another year gone by. Sigh. It's scary how fast it went.
Are you better off than you were last January? Are your relationships more rewarding? Is your bank account bigger?
You are too old to waste time. You have an opportunity to create the life you want starting this year, right now. It's time for the “B” word. “B” stands for budget, but it also stands for goal setting and planning.
And it's time for you to get over your “B”-word problem. You know you are supposed to put a budget together, right? Have you? Have you lined up 2004 in numbers and dollars? Have courage. I'll help you. I have struggled with this. I learned how to budget only because I had to. And so do you. If you don't set goals and measure your progress, your business won't get any better. Together, we can get through it. Here are some tips for putting together your budget for 2004 and beyond.
Getting StartedStart by stopping. Stop whining about budgeting. Stop claiming you can't do it. Stop claiming you don't get it. Budgeting is your best guess at what you can do for sales and expenses for a future period of time. That's all.
Don't worry about doing it just right. You can't do it 100 percent right, meaning you will never guess exactly what you will have in sales and expenses. But that also means you can't do it 100 percent wrong either. Any swing at doing a budget is a positive move.
Realize your power. You are incredibly powerful, so much more so than you realize. Writing your goals, crafting your budget, actually sets your goals into motion. You have everything to gain and nothing to lose by budgeting. So, let's go!
Tools To UseYour accounting software program probably has a budgeting program in it. Use it. It will do the math for you. If you don't have one, flip to the back of the magazine, you'll find several budgeting program choices.
Do you provide plumbing, heating, cooling, electrical, over-the-counter sales and septic tank pumping? Create a budget for each entity. Use the departments feature in your accounting program.
Otherwise, old-fashioned columnar pads are your friends. You know those green tinted sheets with the rows and columns inked in already? There is nothing wrong with using a pencil and paper to work out your budget.
Print out your income statement (a.k.a. Profit and Loss or P&L) from the last two years. If you don't have them, find your income tax returns. Your tax preparer created an income statement for your tax return. You can also have your checkbook register handy.
Basic StepsCreate a reasonable chart of accounts. The chart of accounts should reflect your business. Your accountant may encourage you to use his chart of accounts. Doing so makes it easier for him to do your taxes. He should accommodate you and your business by helping you create a chart of accounts that is plumbing-business specific. I've supplied a sample chart of accounts for you to use from a book on budgeting I wrote called “How Much Should I Charge?” It takes you step-by-step through the process of creating a budget and a corresponding selling price.
Simple budgeting involves goal setting for sales and expenses (costs). Start with account number 4-1000 and work through the rest of the expenses. Of course, you can add other expenses. This is just a starting point. More sophisticated budgeting involves the balance sheet items - assets, liabilities and equity (accounts 1-1000 through 3-9000). If you are new to budgeting, start with sales and expenses. Address the other items with your accountant after you have done that.
There are two ways to approach the sales line of your budget:
- Set a sales goal and work from there.
- Fill in all your projected costs, and then see how much sales will have to be to cover costs and leave your desired profit.
Remember, the budget is a guess. You can move the numbers around. So work your way down the list of costs and take your best guess. Reference your income statement, tax returns and check register to see how much you have spent on expenses in the past.
You can fill in the budget for the whole year, or month by month. Month by month is a more usable format when it comes to checking actual performance to budgeted numbers.
The budget is just goal setting. It doesn't need to be bound by strict accounting rules. You can budget for expenses you haven't incurred yet. For instance, if you want to set aside money for buying a new truck, you can budget for it first and then buy once you have the money saved.
Budgeting LogYou are going to pull some of your budgeted numbers from thin air. Write down notes to yourself as you come up with the numbers for your budget. When you refer to your budget in the months to come, you may forget your assumptions. Write them down in your Budgeting Log.
One more bit of advice that someone important to me passed on: Don't put down budgeted numbers that you know won't happen. For instance, if you know that your insurance costs are going to go up this year, don't put down the same dollar amount as you paid last year. If you don't know the increase amount yet, find out or put in an increased number from last year. But don't put in the same number because you know that won't be it.
Finally, don't bury your budget in a drawer once you consider it “done.” A budget is a viable goal-setting - and -getting - tool. Each month, compare your actual performance to your budgeted performance. Even better, check mid-month. If you are behind in sales on the 15th of the month, for example, take action to crank up sales and to cinch down expenses. If you don't refer to your budget until after the month is over, you may miss the opportunity to salvage a month.
Once upon a time, I taught skiing at Park City, Utah. A client signed up to take a week's worth of lessons with me. As an instructor, a week of lessons is a big money maker. Still, I had to turn him down.
“Listen,” I told him, “you are only going to be here for a week. If you take lessons every day, you'll miss the chance to just ski. You need to learn a bit, and then go practice. Have fun. Make some mistakes. Try things out on your own. If you only take lessons, you'll miss the point: You want to ski.” We settled on a few lessons with some free time in between.
So, go forth and budget. You know more than you think you do. Don't avoid budgeting because you are not sure that you know how. This stuff isn't that hard. If you aren't super comfortable with it, you will avoid it. Or, claim you don't “get” it. But you get it enough to give it a swing. This column has enough information for you to get started.
Put together a budget for 2004. Check your progress against it each week. And have some fun out there on the steep slopes of business.
This year, let the “B” also stand for big bucks!