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(September 2007) posted on Mon Sep 03, 2007

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By Judi Smith

Budgeting is simply estimating your ability to complete a project, whether it’s a job, an equipment purchase, a new location or a year’s survival in business. Complete records of the prior year help make the budget more accurate, but setting financial goals without records can be done. The hard part is sticking to your budget.

To create a budget, first determine your annual income. Extremely detailed budgets complicate life. Therefore, we try to keep our budget very general. Rather than predicting the income from trucks, electric signs, banners, sandblasting, writing, etc., we prefer to estimate our weekly sales as a whole.

Budgeting requires less guesswork if you know what you generally gross per week. This should be a conservative estimate. Don’t increase this gross amount without a good reason, such as a price increase. Remember, you don’t charge for every hour you work. Twenty percent billable time can be considered quite profitable for a single owner who also must handle bookkeeping, bidding, administration and cleaning.

Determine the number of work weeks in the coming year, accounting for travel and other vacation time, including holidays. With these figures, simply multiply your income per week by your number of work weeks.

We intended to work 46 weeks this year, and we’ll average $4,000 per week, including income from books, magazine articles, antique restoration and retail offerings, in addition to the signshop. Thus, we expected to make $184,000. However, income during January and February was abysmal due to the worst storm season in 12 years. As a result, we began March $14,383 behind the curve. At the end of June, we had to recover $13,908 if we were to meet our expectations. We decided to work 50 weeks and average $3,680 instead, for the same $184,000.

You can estimate your expenses once you’ve estimated income. In our shop, direct expenses include contract services, materials and all other expenses costable to a specific customer. Our direct expenses generally average 30% of sales, so we would budget $55,200 to this category, leaving a $128,800 contribution to overhead (COH). I prefer the percentage method for direct expense.

Due to their mercurial nature, direct expenses can be budgeted as a percent of sales. Therefore using 30% as an example, when sales are $10,000, direct expenses are $3,000.