Building A Budget Part II: Number Crunching

Oftentimes, these owners think the process of developing a budget takes an hour or two. Their belief is that the next year will be similar to the last year, so all that’s necessary is to add a percent or two to the revenue and that will set the budget. Here are a few suggestions to improve the value of that budget.

BUDGET REVENUE. All budgets start with an agreement as to what the company’s projected revenues or sales will be for the coming year. Projected revenue for each profit center in a company are developed using a combination of the following factors to arrive at the total projected revenue for the next year.

IRRIGATION BUDGET.

• Number of irrigation projects that the com- pany anticipates installing next year.
• Average revenue per irrigation contract.
• Number of crew days to perform one average irrigation installation project.
• Average cost of materials to be purchased for installation on a contract.
• Average pay by crew in the irrigation installation department.
• Number of properties to be opened and closed.
• Average revenue per contract.
• Number of properties to have repair service.
• Average revenue per repair service.

LANDSCAPE INSTALLATION BUDGET.

• Number of landscape installations that the company anticipates making next year.
• Average revenue per landscape contract.
• Number of crew days to perform one average landscape installation project.
• Average materials to be purchased for installation on a contract.
• Average pay by crew in the landscape installation department.

LANDSCAPE MAINTENANCE BUDGET.

• Number of properties that will be serviced as mowing contract customers for the season.
• Average revenue per landscape maintenance contract. (This should be expressed as the following individual types of activities.)

1. mowing

2. initial clean-up
3. mulching
4. weed control
5. pruning
6. mid-season or year-end pruning
7. leaf removal
8. year-end clean-up
• Each item needs to be budgeted in man-days to perform the various tasks.

CHEMICAL LAWN CARE BUDGET.

• Number of lawn care properties to be serviced.

• Average revenue per service performed.
• Number of services average property will receive in a year.
• Number of optional services customer will purchase.
• Number of minutes to service an average customer per day.
• Average drive time between customers.

MISCELLANEOUS. Here, a company estimates the revenue to be derived from one-time, nonrepetitive services. Typically, the service revenues budgeted here are vegetation control, roundup, tree stump removal, seasonal planting for one-time customers, etc.

EXPENSES. Once the total revenues for the coming year have been determined, it is time to prepare the expense budget necessary to produce the revenue and operate the business.

DIRECT EXPENSES. Since these expenses are determined by your revenue budget, these costs will be a function of the revenue that causes the costs to be incurred. Direct expenses are those costs that are directly dependent upon revenue for a specific type of service the business performs.

• Materials - Direct materials to be used on a job. These materials can be irrigation parts, plants, seed, fertilizer, etc.

• Labor - This is the line to budget the payroll for individuals who will work on a job.

• Payroll taxes - This is the FICA employer portion, unemployment, workmen’s com- pensation, state unemployment and other payroll-based taxes.

• Fringe benefits - Health insurance, disa- bility, life insurance, retirement, etc.

• Vehicles - All vehicles depreciation or rent that are used in the production phase of the business.

• Equipment - All equipment deprecition, purchased equipment expenses or rental equipment that will be used on job sites.

• Maintenance and repair - The costs incurred for repairing or maintaining the vehicles and equipment used in the production phase of the business.

• Fuel and oil - All fuel, oil, grease, etc. used by the business.

• Subcontract - The cost of having other individuals or businesses perform services which generate revenues for the company.

DIRECT OVERHEAD. This category of costs is directly related to the performance of the fieldwork, but it’s not specifically attributable to a specific job. These costs are beneficial to all of the direct costs of the business and are allocated to jobs based on an allocation method chosen by the company.

• Labor shop - This is where the mechanic’s role would be budgeted.

• Labor supervision - This is the cost for the field supervisor.

• Payroll taxes - Same as above except for the payroll in this area.

• Fringe - Same as above except for the payroll in this area.

• Equipment and small tools - Items that will be expensed would be items under $250 or $500. These expenditures would be power tools, pruning tools, backpack sprayers, etc.

• Training - The cost of attending courses, paying for visiting trainers, attending accreditation training or recertification courses.

• Shop, safety & equipment supplies - Safety supplies such as gloves, boots, goggles, first aid supplies, and vehicle safety kits would be budgeted here.

OVERHEAD. The following expenses are often identified as being fixed or necessary to keep the business operating. While it is true you can reduce these costs, often there is little that can be done to lessen these expenses once the business is operating.

• Salary, office - Pay for personnel who work in the office.

• Wages, sales - Commission, variable com pensation, salary paid to sales personnel.

• Wages, owner - Usually predetermined for the year.

• Payroll taxes - Same as above, except only covers payroll in this area.

• Fringe - Same as above, except only covers payroll in this area.

• Office supplies - Paper products, pens, pencils, etc., and similar consumables used to operate the business.

• Computer expenses - Paper products, service agreements, rent or lease costs of equipment, software costs, depreciation of equipment.

• Building rent - Rent for the facility the business operates from.

• Building expenses- Taxes, repairs and maintenance; depreciation of building improvements would be budgeted here.

• Utilities - Water, gas and electric would be budgeted here.

• Telephone- Telephone, two-way radio, cellular and 800 numbers are budgeted here.

• Advertising - Yellow pages and other direct or indirect advertising is budgeted here. Promotional items provided to customers for referrals would be included.

• Travel & entertainment- The costs of out of town travel and the costs associated with entertaining current and prospec tive new customers.

• Dues & subscriptions - The costs of magazines, association memberships, community service group memberships, etc.

• Insurance - Liability, fire, auto, theft, etc. are budgeted here.

• Postage - United States postal costs, UPS, or other delivery service costs.

• Professional fees - Costs for accounts, lawyers and consultants.

• Miscellaneous - Costs which are small or only incurred once a year such as donations, licenses, etc.

This should serve companies as a sufficient guide for breaking down costs for identification, accounting and control. Managing the business will be made easier by taking time to further break costs down into the months they will be incurred. This is where the accounting system you follow plays a role in which month you would budget an expense or recognize revenue.