Budgets… The word itself inspires about as much confidence as a car without brakes.
For successful business owners and tradesmen – the hard-working, sweaty browed builders of tomorrow – it is more of a site plan or blueprint of what’s to come. Sometimes it is a forecast of a storm on the horizon. But most of the time it is a plan on how you want the business to grow.
Growing your business is more than just dollars and cents. Successful business owners set very clear goals and targets each year and work towards these goals with monthly and even weekly monitoring. When things go sour, they adapt, change and carry on. Success, or rather successful businesses, aren’t measured entirely by your trips to the bank. There are more factors to consider.
Here are three reasons why your business needs a budget and a plan.
1. Know what you want
You may remember that story about the famous athlete who went public and said:
“I never really trained that hard or am ambitious in winning any competitions”.
But you probably don’t, because that never happened.
Without setting a goal, target or challenge your business will probably be at a stalemate for a very long time. At best you will have a few loyal clients or customers that you trot along with at a very humble pace while passively submit to economic conditions and seasonal market trends.
The truth is, you don’t have to be mediocre or even universally spectacular. It all comes back to basics.
First, have a clear plan and ambition for growing and developing your business and measure this plans performance from start to end. Think about why you originally took up your trade or field and why you got into business in the first place. For most people, there would be some financial motivation.
Next, you will want to take a look at the numbers. ‘The Numbers’ include financial records, profits, investments, costs and expenses as well as measuring your online assets and other marketing investments. The numbers can and will tell you a story. Some of you may see these numbers and get a real kick in the teeth. Other may see rewards from all of their hard work and ambition. The numbers are the road signs you pass while you are on your journey.
Taking a measured approach by reviewing statistics and numbers that reflect the performance (or sometimes underperformance) of your business takes away subjectivity, personal biases and reasons or excuses. The numbers often never lie and will include sales, costs, margins, overheads and the profit.
Keep your celebration short and sweet because you’re then going to have to ask some pretty tough questions:
- How happy are you with your profit?
- Was it worth it? In terms of time spent, travel, effort and your personal satisfaction
- In your view, how should these figures look?
The answers to these questions are the first step in planning on how you want to evolve as a business.
2. Dollars aren’t the only thing that adds up to your profit
Creating business doesn’t just happen. Costs and profits don’t just appear out of nowhere. Rewards come from having strong principals on efficiency and reflecting on the underlying factors that lead up to you generating business.
These underlying factors could include:
- The number of phone calls you receive
- The number of quotes you do
- The percentage of enquiries that turn into jobs and the average dollar value of a job and average time spent working
- Your investment in marketing and advertising, or just your understanding of your target market
These factors are sometimes called drivers. The sales and profit figures are simply a result of these drivers.
The reality is that there are some underlying factors that contribute to the end profit. Identifying, understanding and preparing efficient processes is sometimes more important than the actual numbers of the budget. Why? So you can take a measured approach to improving which will reflect directly on your costs and profits. This process based type of thinking is what will improve your business. Not just focusing on the budget and figures from the last financial year.
3. Budgeting is not about accounting. It’s about being accountable
Once you understand the underlying factors that create your business profitability and jobs the next thing to consider is: What next?
Your budget isn’t just looking at weekly and monthly targets and costs, understanding the process will help you quantify the factors that will produce the work.
Imagine that you would like to take on at least ten jobs a week. Working ten jobs is NOT what you would want to focus your energy on. Instead, think about your process and the factors that lead up to those jobs:
- Can my target market find me if they need me?
- How often does my telephone ring on average?
- How often do I receive an inquiry in my email on average?
- If I receive five inquiries a day, I will try to convert at least 2 of those enquiries into jobs
- Each job is worth on average around $150, or, each job takes 3 hours at $50 an hour.
Now that you have this process outlined you and your staff have a clear focus and are 100% accountable to the standards you have set. That’s good for you, good for your staff, and good for business.
Business in a way is a game, but there’s no point playing if you don’t know the score. It’s good to know if you’re winning or losing so that you can adapt and act accordingly. Reflecting on your processes is a process in itself.
You would ask yourselves questions like:
- Have I received my average of 5 enquiries a day?
- If not, why not? Can my market find me?
- Am I being effective and closing on my goal of at least two jobs?
- Why not?
- Was I able to help them with that they needed?
- Was there something about my product or price that my customer did not agree?
- Do I need to consider investing more in engaging with my market?
- Do I need to consider my approach to handling enquiries?
- For those jobs that we did close, did it match our average value of $150 or our average time spent on the job?
- Did we invest any money into generating these enquiries?
- If not, why?
These questions are a part of your ongoing process for improvement. The power of your budget is in the process, and then the budget itself becomes a tool for you to use to measure accountability and performance based on rules that you set.
Here at Tradies Accountants we add an extra layer of accountability. We work with our clients to assess the underlying business factors that contribute to their budget and crunch the numbers to help your businesses profitability grow. We also play Dad and ask you the hard questions about the weaknesses of your business eliminating the chance of you missing something important.
Our Accountants have experience in Tradesmen, Sole-Trader and Contractor Accounting and supply the most recent Xero accounting software tools as part of our service so that you can keep track of things live and from any device.
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Tradies Accountant does not warrant the accuracy, completeness or currency of the information provided on and made available through this website. Past performance of any product discussed on this website is not indicative of future performance.