BLOG: On The Level

[#1]

From time to time, On the Level will feature experts in a particular field or specialty contracting service. Here, Mike Lysecki of The Landscape Management Network – a member-based suite of software, tools, systems and education to help landscape contractors increase productivity and profits – explains the importance of a budget to your business.

 Everyone knows the importance of having a budget. Right? Apparently not. According to a recent survey of small businesses, only 31% of them made it to their 5 year anniversary. But the 5 year success rate for businesses that had a written budget jumped to over 98%!  Knowing your numbers is one of the biggest differentiators between successful and unsuccessful contractors.

Your operating budget is your best connection to your business.  Not only will your budget show you what’s going right and wrong in your business, but it eliminates the stress and anxiety of not knowing.  With a budget, you’ll make decisions based on facts that serve the goals you’ve set for your business.  Even better, your budget tells you exactly how to price your work with a system that covers costs, overhead, and profit.

How else can a good budget help your business?

Problems come to the surface, where they can be fixed

Compare your budgeted numbers with your actual accounting numbers to find the gaps in your operations. You’ll catch and fix your problems before your competitors even know they have them!  Working from a budget is like putting your business under a microscope.  Knowing exactly what’s going right and wrong, you’re able to focus your limited time and money on the problems that will make the biggest difference.

Better measure and manage field productivity

Your field labor ratio tells what percent of your sales is spent on field labor wages. When that ratio is rising, you know your productivity is falling.  When your field labor ratio is falling, your productivity is improving – you are spending less on wages as a percentage of sales.  Comparing budgeted to actual labor ratios is an excellent tool during the year to ensure your productivity is on track to meet your goals for sales and profit. 

Your field labor ratio is also a great tool to use to identify and reward superstars in your company, and can be used as a basis for a wage system that attracts and retains the best crew leaders in your industry.

Teach employees to think and act like owners

Take your company budget and break it down by crew.  Give your foremen production targets — use their budget to show them that the more they produce, the more you can reward them.  Train them to think of their crew like a micro-company within your company.  You don’t have to share all your financials but share simple percentages like labor and overhead to teach your crew leaders the fine line between working for profit and working for nothing.  Develop employees who think and act like entrepreneurs inside your business to improve productivity, rewards and profit.

Read the entire article at http://www.lmnblog.com/lmn/2011/why-budgeting-is-the-answer-to-better-business-management-and-better...

Also, watch for upcoming budgeting workshops at your local CAT dealer.

Cat is proud to be a partner with Landscape Management Network (LMN). LMN offers members the tools and the training to build accurate budgets, create profitable pricing strategies, and to link estimation and pricing directly to their budgets. For more information, go to www.landscapemanagementnetwork.com.

Do you have questions about how to better manage your business with a budget? Please comment below and let us see if we can help.