Planning & Budgeting for 2015…And Beyond!

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By mid-June, weeks before the second quarter of 2014 ended, the 2015 budget for Jackson & Sons, Inc., had already begun to take shape. That’s when the company held the first of two annual retreats to review its financial status and make any necessary adjustments to meet long-term business goals.

“We look at the whole package to ensure we’re on the right course for the next six months and the next year to reach our 10-year goals—which represent our future, where we want to go,” says David Jackson, chief financial officer of the Dudley, NC-based company. Joining him on the management team are his brother, the chief executive officer; the vice president of retail sales; and the service manager.

The same group will convene in early December to finalize projected expenses, revenues, staffing requirements, and capital improvements for the following 12 months. And in between the four will meet weekly, just as they do throughout the year, to review business trends and do financial forecasting.

“We use a 12-month trailing financial to identify trends in areas such as residential maintenance renewals, commercial replacements, and revenue per service technician and install technician,” Jackson explains. “We’re firm believers in using our metrics and already have an idea of what our financial statement will look like on December 31, 2022”—the date Jackson & Sons’ 10-year vision will culminate.

The 44-employee firm has built its vision, budget, and financial plan on several goals related to acquiring new maintenance contracts and retaining a certain percentage of existing ones. Another long-term goal relates to maintaining a labor efficiency at a set percentage of sales. Budget development naturally flows from those goals.

A 10-Year Vision
Similarly, TDIndustries in Dallas, TX, has a long-term vision that drives development of its annual business objectives and budget. The 68-year-old company operates in four markets, with construction accounting for about two-thirds of its volume and service representing the remainder.

“When we refashioned our vision in 2010, we looked at our history—what we are capable of—and set a goal to double in size,” says Scott Burrows, senior vice president of the Dallas service group. “At the end of 2010 we were doing about $400 million. Our goal is to push that to $600 million by 2020, and we are halfway there.”

Typically, TDIndustries starts planning in August by gathering about 15 senior executives from its various geographies and businesses. “We spend several hours looking back, using our financial statements and business objectives to determine how we are doing compared to what we had planned. Then we take a look forward and design the next year,” Burrows reports.

In early September the group reconvenes to finalize overall business objectives for the coming year. That process repeats at successive levels throughout the employee-owned company. “At each level of planning, the goal is to make sure we’re all in alignment and pulling on the same proverbial rope to ensure the opportunity for success,” Burrows explains. “The vision cascades down, and all the planning wraps up by the middle of November.” As the business plan solidifies, the budget falls into place accordingly.

Burrows believes the company’s emphasis on long-term planning helped it survive the recent recession without dipping into the red. He notes, “Good, solid planning and doing what you say you’re going to do, year after year, helps you minimize hiccups in the economy by providing a consistent and steady growth.”

What’s the Plan?
David Boelcke, owner of Boelcke Heating in Stevensville, MI, is on his way to becoming a long-term planner as well. Although he has done strategic planning as a leader in various community organizations, Boelcke has not employed the concept in his own company. The recent acquisition of another company, however, may prompt a change.

“When you get to this size, you can’t run the company just by the seat of your pants anymore. You need a roadmap,” says Boelcke, who now has 21 employees. “A strategic plan would be in our best interest, if for no other reason than it would show employees we’re concerned about the well-being and long-term growth of the company.

“Budgeting is not all that difficult—you take what you did last year and add a percentage,” he continues. “Strategic planning makes you think beyond that. And if you want to grow, you really should plan for it.”

Although the opportunity to acquire another company arose somewhat unexpectedly, Boelcke took nearly a year to review revenues, expenses, and overhead before finalizing the purchase. His goal was to retain all of the other firm’s customers, but none of the overhead.

“Obviously, that didn’t work,” says Boelcke, “although we reduced the overhead by 50 percent and have done a good job of keeping customers.” Now that the dust from the 2013 acquisition has settled, he has four more employees, an additional location, and the opportunity to craft a realistic 2015 budget that reflects both increased costs and increased sales.

Boelcke typically begins budgeting process in early October, once he has third quarter numbers in hand. He always starts with the advertising budget, which he bases on a percentage of annual sales, followed by big-ticket items such as health insurance and workers’ compensation. He joins Jackson and Burrows in offering these tips:

Take a refresher course. Your wholesaler may offer a class to refine your current approach to planning and budgeting, and consultants can provide suggestions as well. And don’t forget your MIX Group®: Ask others for their tips on handling the annual process.

Know your numbers. What’s your monthly overhead? Your cost to acquire a customer? Your revenue per employee? “My numbers are always in the back of my mind, so I know if I’m on track compared to budget,” says Boelcke.

Of course, knowing such numbers requires having them in the first place. Jackson & Sons typically closes out each month by the 7th of the following month, giving David Jackson updated financials by the 10th. “Timeliness is key to budgeting and planning, which should be continual,” says Jackson. “If you’re not getting your financial statements by the 15th of the month, then look at your software or your personnel, because something is wrong.”

Be realistic. Pie-in-the-sky goals will prove more frustrating than inspiring. “The last thing you want to do is create a plan that is destined to fail. Goals have to be a challenge, yet attainable,” notes Jackson. “It takes time—and some sweat equity—to develop a plan with a high level of success probability.”

Involve your employees. Rather than doing business planning alone, welcome others’ input. “You’ll come out with a far better product if you’re truly looking to be strategic,” says Burrows. “Your employees may know more than you about what could or should be done to move in a different direction or make incremental improvements. And when you include your people, you help them feel ownership in the plan.”

Burrows acknowledges how difficult it can be for business owners to become more transparent, especially about finances, and more open to collaboration. But, he argues, seeing is believing: When employees see total revenue, gross profit, and net profit calculations, they will recognize the business isn’t a cash cow and better understand the effort needed to make money.

“Being open with employees is part of the leadership growth that needs to happen in our industry,” Burrows believes. “Part of leading people is empowering them—and when you do that, your job becomes easier and their jobs become more fun.”

Don’t delay. Above all, don’t wait until this December to start preparing for 2015. “If you wait, planning and budgeting become a chore and you half-heartedly do it. Then you’ll always have excuses as to why you didn’t make your numbers,” says Jackson.

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Posted In: ACCA Now, Management, Money