7 Steps to go Beyond a Budget

by | Jul 29, 2016 | Blog

Unfortunately, a budget is often referred to as what a company has for a spending plan. More importantly, you need to understand your revenue goals to really understand how much you can spend to earn that revenue. Here are 7 steps that will help your landscaping company go beyond a budget:

1. Defining your expected revenue

What components are you taking into consideration when creating the revenue portion of the budget? Do you base this off of the previous year’s revenue? Say we did 1 million last year, and we want to grow 10%, so we will shoot for 1.1 million this year? You should break down the revenue into two sections, the first being revenue under contract. How much revenue can we count on from maintenance contracts or even project contracts? If you tend to do year to year maintenance contracts, how much work do you anticipate to keep moving into the next budget cycle?

2. Creating a sales plan

The second component for expected revenue is creation of a sales plan. At LandOpt, our budget cycle consists of the calendar year. We base a companies, or individuals, sales plan off of that cycle. With clearly defined sales goals, each individual with a sales plan knows exactly what they are expected to do. This also allows our managers to manage to the numbers. You must also take into consideration how much revenue you should expect to receive from the sales within the budget cycle. Depending on how you manage your billing, you should expect to receive majority of the revenue from projects sold, but might only receive 50% of revenue from maintenance sales.

3. Defining your labor costs

I think of labor as the most controllable cost of goods sold. If we can effectively manage man hours throughout our budget cycle, our chances of increasing our net profits will increase. How are you supposed to know how much labor you should be using? You could simply look back through your payroll system to see how many man-hours you paid out over the previous year, but is that number good or bad? With LandOpt’s financial plan, we can see if you are on the right track or not based off of two components, first being revenue per man-hour. Projects have the ability to earn upwards of $100 per man-hour. Maintenance work is limited to around $50 per man-hour. Going back to the revenue portion of the budget, how much revenue are you expecting from each type of work? Make sure that your man-hours budgeted line up with the expected revenue per man-hour. The second component is to understand what percentage of revenue should be paid out as a labor cost. Using our example of a company that wants to hit 1.1 million in revenue, that company should try to limit their labor cost to 20% of that revenue. Meaning they should pay out more than $220,000.00 in labor cost.

4. Rounding out the remaining Cost of Goods Sold

Labor is not the only cost you can associate to producing revenue. We also must budget for materials, vehicles, equipment, and sub-contractors. Just as labor has a certain percentage cost of revenue goal, so does the remaining cost of goods sold. This allows you to plan for a certain amount of cost for each category, and if followed will allow you to achieve your gross profit margin goal.

5. The idea of Burden

What do you do if you know you have additional costs of producing revenue but you can’t associate it with one of the cost of goods sold? This is where we define a category called Burden. What burden consists of is a compilation of management salaries (some, not all), facility expenses, certification expenses, non-productive man-hours, and so on. We are able to boil down all of these types of costs and charge it as an hourly rate.

6. Progressing your budget

With our budget cycle consisting of the calendar year, we ask our licensee’s to progress their financial plans on a monthly basis. In essence, this creates miniature budget cycles within our main budget cycle.

7. Reviewing your budget

Having the ability to review a budget on a monthly and yearly basis allows a company to correct itself over time. Knowing that you are spending more on materials, or labor, than what was planned for will show you earning a lower gross profit percentage. Seeing that trend happen in April will allow you to push towards correcting that over the coming months. Having the ability to go back over years of budget information also teaches a company to be better at planning for the future. If you had the ability to look over the past 5 years of financial plans, you would be well versed in knowing how much labor costs you need in order to produce work? Your revenue projections would be spot on as well.

LandOpt provides each licensee a designated success coach. This coach will walk you through the process of creating your financial plan. Not just showing you how the tool works, but helping you to understand the methods and practices behind the tool.

LandOpt takes the idea of a budget, breaks it down into clearly defined categories, and coaches a licensee through defining revenue and cost goals from year to year. The coaching does not stop there, as each month passes and the financial plan is progressed, we can see specific area’s our licensee’s need to improve and coach them through the process of how they can make corrections.

Having other Powered by LandOpt companies in the network go through this process can help you tremendously. Each company has their own nuances, they are unique to themselves, but they definitely share some similarities. Information sharing between companies is absolutely encouraged.

Founded in 2004, LandOpt, a dynamic service organization that helps a select group of regionally based landscape contractors dramatically improve their business performance. When contractors are Powered by LandOpt, they not only grow, they become more profitable and productive. Our goal is to help landscape contractors create a client-focused culture that results in measurable, sustainable growth. To learn more, visit: www.landopt.com.




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Mike Eisenhuth





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