Developing And Using A Budget

At this year’s Green Industry Expo, a number of contractors came together to discuss the challenges of budgeting at a Breakfast of Champions roundtable offered by the Associated Landscape Contractors of America.

Many of the nine individuals sitting around the table that morning shared the same concerns about budgeting – don’t know how to budget, wonder where to start, don’t know how much they should use a budget, and think their sales are too unsteady for a budget to help.

Stanley Burns of Burns Tree & Landscape, Bethlehem, Pa., said budgeting lets him take control of his company’s financial reporting and lets him better understand the business.

But Dan Foley, D. Foley Landscape, Walpole, Mass., recognized that figuring out where to start the budgeting process is a tricky question.

"We’re all better at tracking the past, so we need to use that information to help us predict the future," he pointed out.

Bruce Birdsong, Precision Landscape Management, Dallas, Texas, said his budgeting process takes him a couple of days each year and includes his general manager, his bookkeeper and his department heads.

"We look at our past data and our expected growth for the coming year and try to figure out what will be necessary for us to achieve that growth," Birdsong explained. "If we’re looking for 15 percent growth, what do we need to do to achieve that?"

Keith Okamura oversees the landscape construction division of Del Conte’s Landscaping, Fremont, Calif., and he explained that his budgeting process focuses on monthly reporting to his bosses.

"I break our monthly number out into everything from indirect and direct costs to equipment costs until I’ve basically got a profit-and-loss statement for our division for that month," Okamura noted. "I get my numbers by taking information off of the estimating sheets, and our accounting department supplies me with an overhead cost. All of the numbers get plugged in as a percent of sales, and we monitor the numbers for variations that are too high or too low in comparison to where we think the numbers should be."

The challenge Okamura encounters is the difficulty of forecasting for a coming month when landscape construction crews are occasionally called off of a job because of delays or problems with another contractor’s work.

"Over the course of a year, the timing all evens out, but design/build or installation jobs can be a budgeting nightmare in the short term," Foley agreed.

GETTING IT DOWN PAT. Foley explained that his company has been producing budgets for 13 years now – ever since its first day in business – and his budgets are all based on projected financial results for the coming year.

"Our fiscal year starts on March 1 because that’s roughly when our season starts in Massachusetts, and our budget process goes from around December 1 through January," Foley explained. "The entire process probably takes about 50 to 100 man hours, and we produce two budgets."

Foley said the first budget features projected monthly financial statements for all 12 months. These projections deal with Foley Landscape’s entire chart of accounts and expenses. The company’s second budget is its estimating budget, and this budget addresses direct costs vs. overhead costs for the purpose of setting the company’s pricing, labor costs and markups for the upcoming year.

Foley also explained that determining the exact numbers to include in the budget draws on intuition as well as past experience.

"Some numbers are fixed, such as monthly rent, so you can just plug them in and know those numbers will be right all year long," he pointed out. "Other numbers require you to look back at previous years’ actual numbers and go with what your gut tells you will happen this year."

"I used to do the entire budget myself, but now there are seven people involved in the process," Foley added, explaining that he believes the company is better managed when personnel with field management responsibilities are involved in determining the numbers that their performance will be measured against. "Our budget really started working for us when we got more people involved in the process."

Foley said that his budget is used as a management tool through weekly meetings that focus on measuring the current month’s performance against what was forecast.

"Being a futurist is what we’re all challenged with now as we try to predict what will happen down the road," he pointed out. While Foley’s maintenance customers pay a set price evenly distributed over an eight-, nine- or 10-month period, managers still have to be able to forecast accurate renewal rates to devise an accurate budget.

"And we’ve found that 50 percent of the time we have a number that is too high or too low in the budget, the reason is the actual timing of a job," he added.

Ultimately, Foley’s budgetary concern is the bottom line on the page: profit.

"We track our sales, our gross profit and our net profit," he explained. "If we realize that we won’t hit our projected sales numbers, then we either have to sell more or cut our costs. We think our predetermined profit level should be guaranteed, so we push our sales."