A version of this story appeared on Luxury Coach & Transportation (LCT), School Bus Fleet’s sister publication.

Every operation needs a budget. You should already be aware of that. However, are you following the steps you need to take to apply it effectively?

Tracy Fickett, a CPA at Bus Books, an accounting firm dedicated to the ground transportation industry, hosted a session called “Budget Workshop: A Practical Approach” at the 2019 LCT East Show in November that focused on looking ahead and correcting your trajectory to make sure you stay on track to have a successful year and learn from your mistakes.

Don’t Fear the Budget

The first piece of wisdom Fickett shared is “don’t fear the budget.”

“Anything we don’t understand, we get scared of. When we break it down into small pieces, it’s manageable,” she explained.

Fickett focused her presentation on the importance of budgets, as well as six steps to create and use a budget properly.

Budgets are vital to plan for your future performance. You don’t do it just to be able to check it off your list, she adds.

“If you don’t use it, it’s just going to be that: An exercise and something you put off on your to-do list. It’s not really going to be helpful to you if you treat it like that,” Fickett says.

Here are six tips to help you achieve budgeting success.

1. Determine your financial goals.

Develop your financial projection. What do you want to accomplish as a company? Do you want to set a higher sales goal? Do you have a net profit goal? What do you want to achieve? You may want to increase a specific segment of your operation or reduce your workers’ comp expense. All businesses want to put more money in their pocket.

“There are a lot of small companies that make a lot of money. There’s a lot of big companies that gross a lot of money, but don’t necessarily make any net income,” Fickett explains.

Whatever goals you want to achieve, you’ll need a budget to see results.

2. Determine other relevant factors.

This includes situations you can’t control. A new competitor that will seriously affect your business opens next to you. You could have fuel price fluctuations, rent increases, labor shortages, and/or wage increases. Fleet replacement or expansion is another factor to consider along with ripple effects. These situations happen because of another factor, much like a domino effect.

“For instance, I want to increase my sales. I’m not raising my rates; I just want to increase my volume. I want to find a way to boost sales in non-peak months. When I do that, my driver wages are going to go up just based on volume,” Fickett says. “That, in turn, causes an increase in the use of fuel, payroll, taxes, workers’ comp, and tolls. If your sales increased so much by volume that you need new equipment, that’s yet another line item to account for.”

3. Develop a budget based on all information.

Start with your prior year’s information as a base. Take that number and use it to plan based on all the above factors you’ve considered.

4. Monitor the results periodically.

Do this regularly. Don’t make a budget and put it in a filing cabinet and never look at it again — that won’t help you.

You can certainly do this by hand, but Fickett doesn’t recommend it. Some programs such as QuickBooks will allow you to put budgeted amounts in and enable you to print a budget as a report. When you use that approach or any approach that’s broken into regular intervals such as monthly, you will need to break up your budget amounts for the time periods.

“You might have a total of $3 million in sales on your budget, but you need to break it down by month. If your business is stable throughout the year, you can use $3 million divided by 12, right?” Fickett says. “And if it’s not stable throughout the year, if you do 20% of your business in January, you want to assign 20% of the sales to that month. So after you develop an overall budget, you’ll need to factor in seasonality.”

Fickett also recommends setting aside time to crunch numbers. It’s understandable that operators will have “operational fires” that take priority at times. However, it’s important to schedule time every month or so to make monitoring your budget a priority. If you have an assistant manager or another “right-hand” person, have them take over and block off however much time your experience tells you you’ll need to get your numbers in order.

5. Evaluate the results — find out the why.

Let’s say you wanted to hit a sales total of $300,000 this year but came in at $250,000. You must ask why you fell short. On the flip side, if you met your goal, you should analyze what made that happen. What did you do right? Write it down, because you’re not going to remember in six weeks. Did you have fewer trips? Did you earn less per trip? Break down some of those metrics so you understand what happened.

6. Take corrective action.

This step is where you make changes so you can get back on track to where you want to be. Some industry examples of such would be to adjust discretionary spending if your net income is not coming in where you want it.

You can make revenue pricing adjustments. Are you selling trips for too little? Too much? Depending on seasonality, the answer could be either one. Do you need to do some more sales training? Are your salespeople just not closing? Is it a marketing effort issue? Did you drop Facebook advertising or your pay-per-click? Troubleshoot to discover the cause of whatever drops in revenue you are experiencing and do your best to remedy the situation to get back on track to achieving your goals.