Once you’ve made a start and organised a budget the toughest part is to stick to it. And you have to stick to it for more than a couple of weeks.

Think about it – this is one of the greatest challenges you’ll ever have to face. Why? Because you’ll be changing some habits than you never thought you had; plus you’ll also have to row against the tide of ‘peer pressure’.

What habits? I hear you say with some amazement. Well – for starters, there’s the habit of swiping your plastic card without thinking about how much you’ve just spent. Then of course there’s the habit of ‘just buying it anyway’ because you’d ‘really like it as a treat’. Throw in a couple of shopping sprees for things you ‘just want’ rather than really need, add a few take-away meals each week and you have the makings of a short-lived budget.

Apart from the changes in the way you spend your money, you also have to cope with well-meaning family and friends who sabotage your plans to get your finances back in shape. They don’t mean to – but let’s face it – it’s not in their interests for you to blaze a trail in the savings account department. It might make them feel guilty about their own financial shape.

How to stay strong with all these adverse outside influences? One of the first things you can do is to write your savings goal on a piece of paper, and then stick it where you will see it several times every day. This will remind you what you’re working towards, and why you’re doing it.

Get yourself a coach, or mentor; someone to give you encouragement when things get a little tough in the first few weeks. Spend time with positive people, and others who are going the same path as you. Sharing the load is always beneficial.

If you don’t know how to get started or what to do next – give us a call! We’re always available to help.

©

http://www.budgetbitch.com.au



By: Budget Bitch

About the Author:

If you’re unhappy with your financial situation, a personal budget could be the key to resolving your problems and getting back on track. Most people cringe at the words “personal budget,” and hardly anyone looks forward to creating and using a budget. However, once you start and use a budget, you’ll be amazed at the change in your financial life.

As you look over your finances, particularly if you’re struggling with debt and having difficulty just stretching your paycheck until the end of the month, you may feel it’s hopeless. But by budgeting carefully, you can, and will, create a positive financial situation out of what looks like chaos.

To start your budget, go through your most recent credit card and bank statements and list the categories you spend money on. These include necessities like rent or mortgage and food. They also include other categories like entertainment and personal purchases like books or music. At this point, simply list each category.

Next, figure out how much you are currently spending on each category. Just get this down on paper so you can look at it honestly. The most important part of creating a budget is knowing your current situation. Taking an honest look at the way things are helps you create what you want.

List all of your categories again, on a new sheet of paper or in a new spreadsheet or document. Now, determine a new amount for that category, based on the money you actually have coming in each month. The bottom line on your budget must be equal to, or less than, your monthly income. From this point on, you’re going to concentrate on living within your means and paying off your debt.

If your budget comes out over your monthly income, you’ll need to make adjustments in non-essential areas to make it fit. Keep in mind that you need to live within your means, but you also need to live. Do not completely zero out categories like entertainment; just reduce those categories. Don’t deprive yourself entirely of pleasant things, because you’ll never stick to a budget like that.

A good budget covers all of your essential spending, pays back debt, and allows you to have a comfortable life. Of course, comfortable in this sense may be relative, compared to what many people have when they live on credit, but you should be able to enjoy your life on a budget.

Once you’ve created a budget, it is essential that you consult it and live within it. This may be difficult at first. Many people find that the easiest way is to put cash in envelopes for each category. When the cash is gone, that category is finished for the month. Others just record their spending in relation to their budget.

Your first month living on a strict budget may be very challenging, and you may have the occasional slip off-budget. When this happens, just return to living within your budget and keep going. After one month, it should be much easier to consult and work with your budget, and you should find the process more natural.

Don’t let setbacks overwhelm you. Set your budget, do your best to live within it, and build your ability to stick to your budget over time. Within months, you will see a great difference in your financial situation.

 



By: Brian Higdon

About the Author:

Most contractors I run across confess “I never have as much money at the end of the year as I expect to.” Do you suffer the same fate?

Do you arrive at year end wondering where your money went to? If so, I’d bet you’d like to learn how to avoid that ugly outcome.

Pay attention here, I’m going to let you in on a little secret that will help you end those unpleasant year-end surprises. Lean in close. Don’t tell anyone about this. It’s so secretive that few contractors do it. Are you ready?

Use a budget

That’s it. That’s all it takes. Create a budget, track the variances, and take corrective action when necessary. Class dismissed.

Oh, you want to hear more? Okay. Keep reading to learn how to put a stop to those nasty year-end surprises.

Annual budgets allow you to stay on top of your financial progress as your year unfolds. They arm you with the ability to reel in expenses before they kill your bottom line. They force you to think through your business’ strategy and its resource allocations.

When you don’t have a budget to monitor, or don’t monitor the one you have, you are destined to arrive at year-end thinking “Rats. Where’d my money go?”

Contractors’ aversion to budgeting has always struck me as funny (not in the ha-ha sense). On the one hand, contractors tend to be obsessive about planning field work. They know that letting their field crews sort out what to do from day to day is a recipe for disaster. But on the other hand, they don’t apply that reasoning to their business. Lack of business planning leads to poor financial performance; it’s as simple as that.

You need a budget, it needs to reflect the reality of your market, you need to keep a close eye on its progress, and you need to take corrective action when it’s called for. Anything short of this will leave you with that “What happened?” feeling.

Look at the Market

Before diving into the how-to budget details, let’s make sure you understand the connections between your budget, your business plan, and your market.

Your budget is a financial representation of your business plan. Your business plan’s purpose is to take advantage of profitable opportunities in the market. Budgeting should not be attempted until your business plan has been developed.

Your business plan should be aligned to the size of your market, the prices your market will pay, and the cost of serving its needs. You can only make as much money as your market will support and your business plan will deliver. Budget accordingly.

Contractors often put the cart before the horse. They set sales, overhead, and net income goals, put them into a budget, and then try to craft a strategy to fulfill them. That sequence totally ignores the market.

It’s foolhardy to create the financial model and then try to craft a business plan that fits it when the business plan hasn’t been tuned to the market. First strategy; then budget; then meet the budget; then build a bulging bank account.

Your budget will be developed through five stages: preparation, rough draft, refinement, reality check, and rollout.

Stage 1 – Preparation

Unless you implement a new sales and marketing plan, you improve labor productivity, or you reduce overhead, your financial performance will be controlled by the market and the economy. If they grow, you will make more money. If they shrink, you will make less, or even lose, money.

In this industry, past performance is the best predictor of future performance - unless you force change. Build your budget on the foundation of your recent three year financial performance. To do that, gather together the balance sheets, income statements, and cash flow statements for those years.

Next, tap as many information sources as possible to gain an informed view of upcoming market changes. Visit with your banker. Visit with your insurance and bond agent. Buy construction forecast data from McGraw-Hill or a similar provider. Search the census bureaus’ website for reports on economic projections. Call the Federal Reserve and see what reports they have available. Call your local economic development councils.

Eventually, you will discover the experts’ consensus opinion. Even they can be completely blindsided by turns in the economy, but they are the most informed group to listen to.

Go over the information with your executive team. Reach consensus on your upcoming market opportunities.

Here are the Stage 1 steps.

Grab the last three sets of annual statements.

Gather up construction forecasts.

Discuss market opportunities.

Stage 2 – Rough draft

The purpose of the rough draft is to give you a reasonable starting point. Your rough draft will not consider changes to your business plan nor changes in the economy. To create the rough draft, study the income statements from the last three years and determine:

Your sales trends

Your direct cost trends

Your administrative overhead trends

Your sales and marketing expense trends

Your operations support trends

Your labor burden trends

Your average gross margin

Take your most recent income statement and adjust each line item for the trend (up or down) or jot down the three year average, whichever you feel is most appropriate.

Here are the Stage 2 steps.

Determine trends and averages for each income statement line item.

Decide whether the average or the trend is the most appropriate assumption.v

Mark-up last year’s income statement accordingly.

Stage 3 – Refinement

Now, adjust the numbers for changes in the market and changes in your business plan.

If you expect the market to shrink, assume both your sales volume and your margins will shrink. If you expect your market to grow, assume either your sales volume or your margin will grow. Do not assume both will grow (we’re not going to go into this but it usually holds true).

Now estimate the cost impact of new business strategies. For example, you may decide to expand sales by pursuing the office building market. In order to land the work, you will authorize a $10,000.00 advertising campaign consisting of magazine advertisements, direct mail, and client entertainment. This spending would be on top of the advertising you do to generate your current work load. Your advertising budget needs to reflect the additional $10,000 investment.

When thinking through your business plan, look at closely the cost impacts of:

Increased advertising to pursue new market

Expansion of sales staff

Purchase of new equipment

Adding office staff

Implementing or altering management information system

Employee training and development

Changing the bonus plan

Entering a new geographic territory complete with local office

Pay raises

Rising health care premiums

Another budget impact you need to account for is improved selling performance. Assume your sales team persuaded another 20% of your clients to hand you negotiated contracts. You budget would need to reflect the higher mark-ups associated with negotiated contracts.

You are ready to finalize your first draft. Adjust the trended or average numbers for each line item by the impacts of your business plan. Re-type the document so that it is easy to ready.

Here are the Stage 3 steps.

Verify your labor pool and operations support staff team can handle the projected work load.

Verify the targets for sales volume and direct cost markup are reasonable

Verify increases in marketing and sales expenses.

Update equipment expense and depreciation to accommodate new equipment needs.

Update sales volume goal.

Update direct cost margin goal.

Calculate expected work load (labor, material, equipment costs).

Revise and re-type your budget.

Stage 4 – Reality Check

One of the primary reasons contractors fail to hit their profit goals is because they are overly optimistic about their gross margins. The time has arrived for everyone to join a no-holds-barred discussion on operations and sales.

You need to challenge all assumptions made that the crews will perform better than they have in the past. No baseless, pie-in-the-sky claims are allowed. Unless, there is a reason to believe turnover has been greatly reduced, more efficient equipment has been purchased, or the operations management team will be able reduce downtime and rework, do not assume your labor will be more productive than in the past.

The other claim that you must question strongly is the ability of the sales and marketing team to generate better quality leads and better paying jobs. Sales and marketing personnel are highly optimistic individuals by nature. Take their promises of greater glory with a grain of salt. Believe it when you see it, not before.

In other words, don’t take their word on gross margins at face value. You need to analyze it segment by segment. Discuss the real mark-ups each segments produces. Pull out your job costing reports to see what the real mark-ups ended up being.

Ask them why they believe the leads will be better and why the margins will improve. Segment by segment, forecast total sales and margins. Pull them together and compare to your budgeted direct cost and gross profit.

Adjust your budget accordingly. Now, you’ve finalized your budget. Time to roll it out.

Here are your Stage 4 steps.

Call a meeting with your top operations and sales personnel.

Review and discuss field performance and projections for improvement.

Review and discuss advertising and selling segment by segment.

Tweak the budget based on the outcomes of these conversations.

Now, you’ve finalized your budget. Time to roll it out.

Stage 5 –Roll-out

Now that you’ve finalized the 12 month budget, you need to break it into manageable chunks (12 chunks that is). Create a spreadsheet with 14 columns. Label them by month. Each row is an income statement expense. The first column is the name of the expense. the second column is the total for the year. The third column is for January, the fourth for February, and so on.

Look at each income statement line item and determine whether it is an expense that stays consistent each month (e.g. office rent) or varies monthly. Many overhead expenses are billed twice a year or quarterly. Put the appropriate value under each month. The total for the months must equal the total for the year.

Pull up monthly sales for the last three years. Calculate the weighting of the sales per month. For example, if you typically sell $400,000 in July out of $3,200,000 annually, July accounts for 12.5% of your sales. Calculate 12.5% of your budgeted sales and direct expenses and put them in July’s column.

Continue filling out your spreadsheet until you have the entire budget accounted.

Make copies of the detailed monthly budget and distribute to all individuals who have spending authority. Pull them into a meeting, shut off the cell phones, and explain the detailed budget to them. They need to understand the expenditures planned by the budget, the logic behind the expenditures, the assumed gross margins, and the planned timing of the expenditures.

A word is in order here regarding cash accounting versus accrual accounting. If you are running your business on the cash accounting basis, you should set up your budget and track your progress on the accrual method. Cash accounting is great for taxes but terribly misleading for managing a business.

Here are the Stage 5 Steps

Allocate the annual expenses to the appropriate months.

Determine the historic pattern of your monthly sales.

Create monthly budgets for sales, field costs, overhead, and profit.

Present the detailed budget to your management team.

By completing the 22 step budgeting procedure, you now have in hand the tool that empowers you to manage your year end performance. Of course, the key word in there is “manage.”

Tracking

The second reason contractors fail to hit their year end financial targets is because they fail to track their progress against budget and take corrective action as necessary. Have your accounting staff generate an income statement and cash flow statement at the end of each month.

A word is also in order regarding your accounting staff. Whether inside or outsourced, your accounting staff must get you these reports no later than the seventh of the month. Hold them accountable to that date. They will probably whine like mad but ignore it. Timely reporting must be a non-negotiable duty of their position or service.

The monthly income statement should show:

Budget value for the month

Actual value for the month

Budget value year-to-date

Actual value year-to-date

Actual vs. budget variance for month

Actual vs. budget variance year-to-date

Projected year end based on current trend.

Gather together your management team, review and discuss the income and cash statements.

Taking Action

Budgets do not produce the results. Managing to them is what produces the results.

As variances become apparent, investigate their cause and take all necessary action. That may mean visiting with someone or some group who is underperforming and discussing things can be done to meet the performance goals. Taking action may mean revising the budget in accordance with changes in the economy and market.

When spending exceeds plan, or sales fall short, discuss the situation with your management team and decide how to get back on plan, and whether the spending needs to be scaled back to offset poor sales or increased to take advantage of unexpected opportunities.

You should not ignore unforeseen opportunities just because money wasn’t set aside for them. Adjust the budget as better-than-expected opportunities arise. Reallocate your resources or increase your budget to accommodate the needed investment.

Cash Budget

Translating your monthly income budget into a monthly cash budget is surprisingly easy and highly beneficial. Copy your income statement spreadsheet and translate the monthly sales figures into monthly cash receipts.

The way to do this is to look at your aged receivables. If you typically receive your money 45 days after the job, then your inbound cash trails your sales by one and a half months.

Your outbound cash is also pretty easy to figure. You field labor gets paid weekly. Your office staff twice monthly or so. Your materials are due in 30 days. The overhead expenses are already scheduled. Lease payments are due every 30 days.

Monitor your cash flow budget just like you do your income budget. Go over them at the same time. Usually, when cash flow is becoming a problem it is due to slow paying clients. You need to know that as quickly as possible so that you can chase the money owed to you.

Final Reminder

To run a construction company successfully, you must pay attention to the rate at which your business generates gross profit and the rate at which it spends money on overhead. The only way you can know whether those rates are acceptable as your year unfolds is to create a budget and keep an eye on its progress. Otherwise, you might as well keep expecting those ugly year-end surprises.



By: Lori Smith

About the Author:

Any landscape project requires planning which including setting a budget to ensure that you do not spend money you have not got! Creating your landscape budget will help you figure out how much you can spend on building your landscape, and it will help you make an investment in your home that can hopefully add value to your property and yield a great returns.

When you are setting your budget, it is important to remember that your costs do not end with the initial costs of building the landscape. You need to take account of the cost of maintenance, replacing materials and any other related and recurring costs that are a part of the landscape experience. Whilst the extent of your budgeting will vary you need to set a budget whether all you have is a lawn or a much more elaborate design.

When you set your budget, you need to take into account everything. Whilst this can appear to be a distraction from getting on with the project and creating the beautiful landscape you have in mind, in the end it will help you out. You will not be surprised at how much everything costs if you have estimates on costs and if you have stuck to your reasonable budget.

It will help if you think of each portion of the landscape as an individual project and create a budget for each project. Then add it all up to see if you can afford the total. You can adjust what you want for the flowerbed if that will bring your total cost down, or choose to forego one of the statues you had planned to place if that will reduce your costs to within affordable limits

You need to figure out which plants you want, and whether or not they will look good in your landscape. You should try to come up with a variety of plants and then investigate their costs. Find out what types of fences are available and create a budget based on something that you like, but that does not cost a lot. Know what materials you will need to build a patio, deck, or arbor. Then figure out how much those materials are going cost, and whether you can get them any cheaper.

When creating your budget, keep in mind the landscape that you want. Are there special fixtures you desire? What elements can you live without? You need to create your vision of the landscape and then alter it according to your financial abilities to support your vision. Landscape design software can help in this, as you can easily adjust your plan and your ideas to fit with your budget.

You can figure out the approximate costs of certain aspects of your desired landscape by talking to professionals or by looking online to find what is needed for similar projects. If something is going to be too expensive, you will need to decide either get rid of it altogether, or adjust a few other elements to compensate for the increased price.

Plants are likely to be the main elements of most landscapes. When choosing plants, you need to consider size and growth rate. Many people choose cheap, fast growing plants and do not take into account future maintenance costs. Fast growing plants typically cost more in maintenance because they get bigger faster. They require more pruning, and if you are not careful they can quickly make your landscape look overgrown. Slower growing plants may force you to adjust your initial views of spending, but will save you money over the long run.

Part of your budget should include future maintenance costs, and you should make sure you get estimates on those, for a variety of possible plants, when planning your landscape budget.

Another decision you have to make is how much of the work you are going to do yourself. There are many landscape projects that can be done without professionals, and still look very attractive. If you are worried about pouring concrete for walkways, construct your walkways out of flat rocks. Part of creating your landscape budget is factoring in the cost of labor. If you do it, then it certainly adds to the feasibility of doing more for less.

Once you have created your budget, keeping everything in mind, and making a detailed list of how much you want to spend for each individual project, you can then begin working on the projects. Try to save as much money as you can, making it a goal to come in at or below budget. If something looks to be costing more than you budgeted for that project, you need to scale back or adjust another project. Creating a budget does no good if you do not stick to it, and it can come back to haunt you later if you disregard the budget you made.



By: Paul P. Duxbury

About the Author:

Somebody asked me the other week “what is the perfect budget?” That’s an excellent question and there really is no right or wrong answer. Just as, individually, we’re all different, so too are our hopes and dreams, our lifestyles and our needs and wants.

So, what might be the perfect budget for one person might not necessarily work for somebody else. Even though we might work at the same place as our friend, and earn the same money each week, because our home lives are very different so too our budgets will be different.

There are many factors to consider in a budget: how much debt do I have? How much are my weekly, monthly and annual bills? How much income do we receive each week? What are our financial priorities? What savings would we like to put aside for the future? What will our needs be in a years time? In five years time? In a decade? Possibly the biggest question we must ask ourselves is: do we have enough income to sustain the life we’re leading now and into the future?

Sadly, for so many of us, we don’t have an income problem but a spending problem. The perfect budget has many facets. It has a portion to repay our debt as soon as possible, without choking the finances. There is also a portion for day to day bills which enables us to pay these accounts on time without stress. And, of course, there is also a portion that puts a little aside for ‘rainy days’. So many of us have no savings and therefore have to borrow money for the times when disaster strikes.

Finding the perfect budget for your family won’t happen overnight. It takes some planning, and then some test-runs to make sure the perfect mix of spending and saving are in the right proportions. It needs time and patience to get it right for you and your family. The first step to finding the perfect budget is to start working on it! ©

http:www.budgetbitch.com.au



By: Budget Bitch

About the Author: