Welcome to Financial Series #7Establish Budget
Your Hosts for Today’s Conference are:
Gary Elekes in Nashville, Tennessee
Gary Oetker in Plano, Texas
Conference Objectives:
Review the significance of Budgeting and why itshould be done.
Review fundamentals in setting financial goals
Review how to construct an annual budget
Review how to construct monthly budgets
Review how to involve employees in budgetprocess
Review why to budget and the basics in settingfinancial goals
Review how to set business mix goals
Review how to budget above the line
Review how to analyze & change monthly sales curves
Review how to budget overhead
Review how to create an annual and monthly budgets
Review how to involve employees in budgetingprocess
Agenda for Conference
A prediction of what might happen
You will always be wrong
An effort to plan for the future
A proactive approach versus reactive
A “financial picture” of the future
What is a Budget?
Creates guide and financial roadmap
Creates accountability for your entire company
This fits nicely into pay for performancecompensation plans for department heads
A budget helps you focus and select amongalternative strategies to achieve financialgoals
A monthly budget provides milestones duringthe year
Why do a Budget?
Step 1 – Internal Analysis
Step 2 –External Analysis of Opportunities andThreats
Step 3 – Set Financial Goals
Step 4 – Create a Budget in Support of FinancialGoals
Step 5 – Assemble Action Plans to SupportBudget and Financial Goals
Budgeting is One Step in Creatinga Financial Plan
Setting Financial Goals
Internal Analysis
Review historical financial performance bydepartment
Compare to industry Key Performance Indicators(revenue per employee, gross margin,margin dollars/crew day, overhead, etc.)
Consider desired Return-on-Investment
Consider company strengths and weaknesses
Consider business mix
Setting Financial Goals (cont)
External Analysis
Consider market opportunities
Consider market threats
Other Considerations
Consider other aspects in setting financial goalsincluding marketing, operations and organization
Goals must be realistic and attainable, but shouldhave some stretch
Involve your management team in goal setting
Determining Business Mix
Preliminary (For Year)
Determine yearly revenue goals per department
Determine gross profit percentages perdepartment
Determine gross profit dollars per department
Determine cost of sales
Estimate total company overhead
Estimate total company operating profit (EBIT)
Adjust department revenue and gross margins toget desired return on investment
Business Mix Worksheet
Budgeting Techniques
Above the Line
Use history as a guide
Finalize your business mix
Finalize revenue goals by department
Estimate cost of sales using percentages
Except for labor – Use dollars
Use KPI’s as a guide to setting cost of salespercentages
If there’s a variance from history versus the plan,be sure to create action plans to implement thosechanges
Budgeting Techniques – Above the Line
Budgeting Techniques -
Determining Sales Curves by Department
Look at historical sales
curves by department
Previous Years Sales History
Analyze & Adjust Sales Curves
Use previous years performance as ahistorical guide
Take any anomalies into consideration
Make plans to flatten peaks and valleys
Set new sales curve for budget
Analyze and Adjust Sales Curves
Sample Historical Sales Curve for Service
Can you sustain growth
at peak months?
Can you increase revenue
at the valleys?
Budgeting Techniques -
Project Monthly Revenue by Department
Spread the sales goals to eachmonth using percentage as a guide.Tweak the final numbers.
Budgeting Techniques -
Project Monthly Gross Margin by Department
Budgeting Overhead
Budgeting Techniques -
Overhead Considerations
Overhead Categories
Usedollars foroverheadexpenseaccounts
Tie marketing budget toMarketing Plan
Refer to industry KPIrecommendations.Remember to accommodatebusiness mix.
Review each line itemand estimate expense
Plan importantprocess/operationalchanges while budgeting
Budgeting Techniques -
Set Overhead for Year (cont)
Budgeting Techniques -
Project Monthly Overhead Expenses
Consider costs that hit specific months(I.E. – marketing campaign)
Consider spreading out over costs over 12months (I.E. - Cost / 12)
Budgeting Overhead
- Gut Check -
Setting Budget for 3 Slowest Months
Budgeting Techniques -
Target Monthly Overhead
Target monthly overhead socompany makes money in 3slowest months
Budgeting Techniques -
Set Monthly Overhead (cont)
Target monthly overheadso company makesmoney during theslowest times of the year
For residential replacement& service focusedcompanies, target monthlyoverhead at 30% of average3 slow month
$114,867 x 30% = $34,460
Budgeting Tool on Website
Interject Budget Into Income Statement
Discuss
Conclude
Commit
Create
Execute
Measure
Feedback
Getting Employee Buy-In Model
Note – I will update this slide
DiscussInvolve Personnel
ConcludeGet Buy-In on Decisions
CommitAll Hands in Team Goal
CreateIdea to reality – stuff!
ExecuteAccountability to do Work
FeedbackMeasurements & Report
Adapt PlanAdapt as Needed – Startfrom the top again
Getting Employee Buy-In Model
Create thirst for facts and realism
Share company performance with all employees
Make effective communication a core value of yourcompany
Create clear concise performance expectations
Ask employee input into business plan for company
Have employees establish goals along with you
Involve Employees in Decision Making
Questions
&
Answers