Landscape Management, October 2013

THEBENCHMARK FRANK ROSS The author is owner manager of 3PG Consulting Reach him at frank@ 3PGConsulting com Confessions of a budget freak I am all about eliminating the guesswork we face in our businesses Yes I am a budget freak Some of this stems from what my mentor Emol Fails Ph D instilled in me a long time ago One such morsel was the construction industry is the second most risky business behind restaurants in the U S That doesnt say much for us on that side of the landscape business but think about it Were in the business of selling labor the greatest variable of all We perform our work outdoors so we have weather to deal with every day Most times were at the mercy of others for payment for our services and to make matters worse were uneducated in the art of financial management Only one of every 10 contractors who opens his doors will see his 10th anniversary Now thats a horrible statistic Im also all about maximizing profits Its what my partners and I do everyday and we do it by eliminating bad decisions Fails taught me to make a plan to reduce bad decisions Thats what a budget is a plan Think about this Would you ever commit to doing a job without an estimate of costs overhead and profit Of course not So why I ask would you ever start a whole year of jobs without a budget You wouldnt Fails also told me without a well conceived plan we have the chance of making the right decision about 55 to 60 percent of the time With a well conceived plan Fails follows up the odds of making the right decision increase to 65 to 70 percent Now some of you might think increasing your chances of making the right decision by 10 to 15 percent isnt worth the effort but believe me it is A well defined business plan will more than double the profits generated without a plan Say when So when do you prepare a budget Budgeting is a perpetual process If youre a calendar year operator youll begin the process for the coming year around August and its a monthly scrub for the next 16 months August of this year through December of next year In the fall well initiate the plan for the coming year with a pricing budget Every fall well set our pricing LANDSCAPEMANAGEMENT NET OCTOBER 2013 10 strategies for the coming year If were in maintenance our commercial customers are setting their budgets for next year in the fall if were in installation many of the projects were proposing in the fall will not be installed until the spring The point is to make sure we can effectively estimate and price the work To that end well want to know how well be spending money in our company next year That requires a preliminary budget to set what growth we anticipate what capital expenditures for vehicles and equipment well need what are the labor wages and benefits we anticipate will there be changes in material unit costs what changes in overhead spending might we experience etc This preliminary forecast will tell us if and how much of a price adjustment well require for the coming year to achieve our net profit goals Preparing the detailed budget for next year will likely span a time frame of mid October to mid January Count on it being a fairly involved process I encourage involving our key people in this project The more they know of our plans the more ownership and accountability we will create among them This tactic creates buy in and does nothing but heighten our chances of surpassing our goals An effective budget is a team effort Once the budget for the year is set spread the results by month to create a rolling budget With each month that passes replace the budgeted figures for the month with the actuals for that month and retotal the year actuals plus the remaining budgeted months Do we like what we see Now comes the real strength of the process Every month well look forward 90 days at all of the budgeted assumptions and challenge our abilities to achieve them sales labor control overhead spending the entire gamut If theres an area where we feel well either exceed or fall short of goal change the budget Yep change it Then repeat this process monthly Sure Im a budget freak and proud of it But more importantly I am a profit freak budgeting is just one way I do it