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Budgeting: The Basis for Profitable Endings
 There is a common saying that, “Failing to plan is planning to fail.” It is truer than you may want to believe.
Successful business planning involves making an intelligent guess of what the end of the year will look like. Every successful year starts with that end in mind.
That said, let’s go through the possible steps in creating a budget that has legs, predicts a pricing model, forces decisions based on financial impact as well as production impact, and can be tracked to keep score month by month.
Your Needs and Goals Come First
Start with the owner’s compensation ― what you would like to make for the year, or at the very least, what you need to make. Your personal needs and goals will drive how much money has to satisfy owner’s compensation and benefits.
This is essential to proper planning. All goals and desires will have a financial impact, and you need to bring those costs to the company to help in making them realistic.
All Your Goals Should Be SMART
Make sure all your planning goals adhere to the SMART acronym:
- Specific
- Measurable
- Action-Oriented
- Realistic
- Time Sensitive
A goal that can’t be looked at in these terms is merely a wish.
A plan to increase sales can be made merely by letting inflation take hold. But a plan to “increase residential remodeling sales revenues by 5% compounded over the next three years by increasing prices and without adding staff” is a realistic goal.
The latter plan has a time frame and is specific, action-oriented, measurable and, with proper planning, attainable. Only with a goal like this in mind can a working budget be established.
Think of your budget as an opportunity to anticipate your best year ever, while having a plan in place for adjustments if the financial picture sours.
With a sound budget, if the year is going better than planned, you can make it stellar by implementing the programs, purchases, marketing, hiring, salary and other pieces of your business plan that you planned for when business is going well.
Conversely, if the year is going poorly, you already have a written list of the programs, expenses, layoffs and capital purchases to cut back. With a predictable budget cycle, you already have made the hard decisions on paper outside of the emotionally charged climate of actual cutbacks.
Judge the Year Accurately
To judge whether you are having a good year, a year better than last or your best year ever, measure both volume and gross profit margin percent — two gauges that can predict the year’s-end outcome of your labor accurately.
Have Options in Place for Year’s End
With IRS Section 179 depreciation write-offs, it is easy to play the tax-and-profit game on capital purchases right up until you actually have to pay your taxes. Other possible tax scenarios that need to play out before year’s end include: selling for a loss or gain; larger pension contributions, or none at all; not sending out bills; and collecting checks.
A Free Budget Planning Tool for NAHB Members
For more information, go to the NAHB Web site for my free, step-by-step budget planning tool. It includes five steps that will help you plan and budget with a profitable end in mind.
Alan Hanbury, Jr., CGR, CAPS, a member of NAHB’s Business Management and Information Technology committee, is the president and CEO of the House of Hanbury in Newington, Conn. He is a frequent speaker at the Remodeling Show and JLC Live residential construction trade show. He also is a columnist with Professional Remodeler magazine and an instructor for The NAHB University of Housing designation programs.
 NAHB Has More Than 250 Resources to Help You Run Your Business More Profitably
Go to NAHB's Business Management Tools Web pages (available to members only) for instant access to more than 250 timesaving, moneymaking and cost-cutting business resources to help you run your business more profitably. Get guidance on accounting and financial management, business strategy, computers and information technology, customer service, human resources and more.
Resources are added weekly, so bookmark www.nahb.org/biztools to go directly to these vital business management resources.
Local and state home builders associations can link directly to www.nahb.org/biztools from their Web site and give their members instant access to these resources. It will make your HBA's Web site the place to go for the information and guidance that members need to succeed.
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NAHB’s Business of Building e/Source is your monthly electronic guide to the hot issues and emerging trends in home building business management. You’ll find practical advice, tricks of the trade and sound business guidance — all delivered monthly, straight to your desktop, in a quick and easy-to-read format. Business of Building e/Source is available free to NAHB members and their employees.
To subscribe, visit www.nahb.org/BoB on the Members Only side of the NAHB Web site.
 NAHB Technology Solutions Directory Now Online
NAHB’s Technology Solutions Directory — an easy-to-use directory that enables builders, remodelers, contractors and other industry professionals to find information on software and IT solutions and services for their businesses — is now online. The directory is sponsored by the Business Management & Information Technology Committee.
Software and technology solutions providers interested in being listed can sign up for:
- Enhanced Listing — Listing includes company name, URL, e-mail address, mailing address, phone number, company/product description, company logo. Click here for more information.
- Standard Listing — Listing includes company name and phone number. Click here for more information.
For more information, e-mail Wil Heslop at NAHB.
The Technology Solutions Directory is solely for educational and informational purposes. Nothing in the directory should be construed as policy, an endorsement, warranty or guaranty by the National Association of Home Builders of the listed software, IT service or the software/IT vendor. The National Association of Home Builders expressly disclaims any responsibility for any damages arising from the use, application or reliance on any information contained in this directory.
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