Budgeting: The Basis for Profitable Endings  There is a common saying that, “Failing to plan is planning to fail.” It is truer than you may want to believe.
Successful business planning involves making an intelligent guess of what the end of the year will look like. Every successful year starts with that end in mind. That said, let’s go through the possible steps in creating a budget that has legs, predicts a pricing model, forces decisions based on financial impact as well as production impact, and can be tracked to keep score month by month. Your Needs and Goals Come First Start with the owner’s compensation ― what you would like to make for the year, or at the very least, what you need to make. Your personal needs and goals will drive how much money has to satisfy owner’s compensation and benefits. This is essential to proper planning. All goals and desires will have a financial impact, and you need to bring those costs to the company to help in making them realistic. All Your Goals Should Be SMART Make sure all your planning goals adhere to the SMART acronym: - Specific
- Measurable
- Action-Oriented
- Realistic
- Time Sensitive
A goal that can’t be looked at in these terms is merely a wish.
A plan to increase sales can be made merely by letting inflation take hold. But a plan to “increase residential remodeling sales revenues by 5% compounded over the next three years by increasing prices and without adding staff” is a realistic goal. The latter plan has a time frame and is specific, action-oriented, measurable and, with proper planning, attainable. Only with a goal like this in mind can a working budget be established. Think of your budget as an opportunity to anticipate your best year ever, while having a plan in place for adjustments if the financial picture sours. With a sound budget, if the year is going better than planned, you can make it stellar by implementing the programs, purchases, marketing, hiring, salary and other pieces of your business plan that you planned for when business is going well. Conversely, if the year is going poorly, you already have a written list of the programs, expenses, layoffs and capital purchases to cut back. With a predictable budget cycle, you already have made the hard decisions on paper outside of the emotionally charged climate of actual cutbacks. Judge the Year Accurately To judge whether you are having a good year, a year better than last or your best year ever, measure both volume and gross profit margin percent — two gauges that can predict the year’s-end outcome of your labor accurately. Have Options in Place for Year’s End With IRS Section 179 depreciation write-offs, it is easy to play the tax-and-profit game on capital purchases right up until you actually have to pay your taxes. Other possible tax scenarios that need to play out before year’s end include: selling for a loss or gain; larger pension contributions, or none at all; not sending out bills; and collecting checks. A Free Budget Planning Tool for NAHB Members For more information, go to the NAHB Web site for my free, step-by-step budget planning tool. It includes five steps that will help you plan and budget with a profitable end in mind. | 
