A contractor without a budget leaves money on the table

Have you ever wondered if you need a yearly budget for your company? Perhaps you’d rather not make one. After all, it’s a lot of work. As long as you’re looking to grow your business more this year than last year, everything will work out, right?

Stop right there — don’t go down that thought path. There are more reasons to create a yearly budget than just having a point of comparison for growth.

Two Excellent Reasons for Having a Budget

Accountability for Financial Goals

If you’re creating a budget for your company, you should be doing so with all members of your leadership and management team.

A budget put together by a team results in more company-wide belief and buy-in versus a budget that’s dictated by a single person. If the budget is just rolled out by the owner, it becomes the owner’s budget; the team won’t believe in or care about the numbers. But if the team has worked to build the budget and come up with next year’s goals, there will be ownership and team accountability attached to those goals.

Pricing for the Upcoming Year

If you don’t know what your expenses for the next year will roughly be, or how many hours you estimate you’ll be able to bill, you can’t know if you’re charging the correct price for your services.

For this reason, your yearly budget should be the baseline for setting your selling price. Use your budget to make sure you’re priced properly to cover your expenses, see a healthy profit for the year, and, most importantly, grow your company. Without a budget where you’re projecting your costs in the upcoming year and creating a plan to cover them, your price is likely to fall short of where it needs to be.

Some companies base their selling price on what a few close competitors are charging. The problem with this approach is that no two companies are alike, so a price that works for one company is not likely to work for another.

At Nexstar we believe in a full budgeting and planning approach. We work with our members to create budgets based on historical performance and projected performance for the next year, and we create plans for how they’re going to achieve their company’s goals. We guide leadership teams through all the budgeting and planning steps needed for business growth.

I urge you to start reviewing your company’s past performance and setting a realistic budget annually. Without a solid budget, you’re just hoping for success without a plan– a dangerous game to be playing with your company and your employees.

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Shane is the accounting coach for Nexstar. He helps independent residential contractors produce timely and accurate financial statements by establishing solid accounting and reporting practices.