Using a budget is crucial in driving your transportation company’s financial future, but many businesses wonder how to get started. According to IBISWorld reports, one of the top success factors for a transportation company is adequate cost controls and budgeting. Here are seven tips to help your company build an effective budget:
CREATING A TRANSPORTATION BUSINESS BUDGET
TIP 1: RECOGNIZE WHAT A BUDGET IS
A budget is simply a guide to assist you in making better spending decisions. A budget supports planning goals, assists with managing money, helps keep costs under control, and aids with the decision-making process.
Insight: When creating a budget, it is important to think positively. If you dread creating a budget, the chances of developing a good one decrease. Instead of seeing it as an obstacle, consider making a budget a positive move that provides you with a helpful business tool.
There are different types of budgets. Some transportation companies find it beneficial to budget on an accrual basis to estimate net income, while others focus on budgeting for cash flow. Some companies have two budgets to track both of these critical financial performance measures. Regardless of which budget type you choose, ensure the goal of the budget is clear. Before creating your budget, you should also be aware of pending changes in regulations, such as overtime rules, health care changes, and new tax laws.
Click to read: Transportation Industry: 4 Budgeting and Accounting Basics You Need to Know
TIP 2: UNDERSTAND YOUR COMPANY
Even though your business is not exactly like every other one in your industry, there are similarities. If you can identify areas where your results vary significantly from other similar companies, you can make better spending decisions
It is also essential to understand the risks of your business and the transportation industry. For example, school bus companies are seasonal in nature and should break down an annual budget into a quarterly or even monthly.
Tip: Identify the most substantial threats to productivity within your organization and plan for their financial impact.
TIP 3: MAKE IT A TEAM CONVERSATION
It is imperative to build the right team to create your budget. One person should not create it. If certain team members are going to be held accountable for the budget, they should influence its creation.
Typically, we think of budgeting as a task reserved for members of management, but there may be other individuals who can also share their knowledge and expertise. For example, a body shop technician may identify when equipment will need to be replaced or overhauled.
TIP 4: BE REALISTIC & FLEXIBLE
A budget is not truly effective if it is designed toward a targeted number. Employees will likely dismiss unrealistic budgets as unattainable and ignore them completely.
Insight: Your budget is a financial representation of your business plan. Creating a budget should not be attempted until you have a developed and refined business plan.
As a starting point, analyze financial results from up to five years ago. Enter your fixed costs first – expenses like rent, insurance, and other amounts that you know are inevitable. Then analyze the accounts that have fluctuated more over the years to determine what caused the fluctuation and if it can be controlled in the future. Using past information and adjusting for predicted differences helps provide a better rationale for establishing budget numbers.
Tip: A budget should be reviewed and amended several times throughout the year.
TIP 5: PAY ATTENTION TO DETAIL
The more detailed your trial balance is, the more influential the budget can be. It is crucial to understand which costs are essential expenses for the company and which costs are non-essential expenses when budgeting for expenses.
Look for accounts that should be grouped together into one account or accounts that are holding several different types of expenses that should be separated into unique accounts. For example, some companies may be fine with a line item called “payroll.” But others will want to break this down by department or employee type.
TIP 6: UTILIZE THE RIGHT TOOLS
Organize budget information in a spreadsheet or online software. Choose a tool that is convenient and easy for you to continue to use going forward.
Note: Most accounting software has a built-in budgeting tool, so if you are frustrated with your spreadsheet budget, take a step back and check whether your current software has a tool you could utilize to assist.
Using online software may lead to budget efficiency as the software can easily compare to prior years and analyze current year results compared to the budget.
TIP 7: SHARE THE BUDGET
A company’s budget should not be a secret. While some financial information should be kept to a limited group, companies will find that increasing whom the budget is shared with will lead to greater transparency, increased feedback, and beneficial communication. Further, the budget-to-actual result could be used to incentivize employees to increase their productivity and limit spending.
QUESTIONS ABOUT CREATING A BUDGET FOR YOUR TRANSPORTATION BUSINESS?
Transportation companies have unique challenges when it comes to financial management. Maintaining a realistic budget will allow you to make informed business decisions that will lead to continued success
Need help? Our Transportation Group, comprised of numerous professionals, is committed to serving over 110 school bus, trucking, airline, and charter bus companies. Contact us today to learn more about how we can help while providing accurate, timely, and professional financial advice.