Most, in fact all, large companies develop some form of budget for the coming year or years. Why do you think they do that? If you think you are too small to budget, think again. Whether you’re working as the sole rater in your small business performing just a few ratings or audits a year, or you have hundreds of employees performing thousands of ratings, you still need to budget. If you keep all of your financial goals for the future in your head and never document them, what allows you to measure your success against your intentions? How do you know that you are pricing your services correctly?
You may think you understand all of your costs and how much money you are making, but you should be considering more than just the costs that seem directly related to your product or service. For example, there are usually a great many indirect costs you incur with each person you hire. These include such things as employer tax matching, employee benefits, future raises, changes to payroll policies, and time off coverage. Other non-payroll indirect costs can include moves to new locations, increases in property taxes, greater depreciation as a result of new equipment purchases, new insurance requirements, etc. If you have not considered all of these things in your pricing structure before, you are probably charging too little, and you are probably not making as much as you thought you were.
This is why you should plan and budget. It forces you to account for ALL costs your organization incurs. It also shows you how much of your net income is dependent on keeping a close eye on specific things. For instance, time is literally money in a service business. The more time spent on a task that has a fixed price, the less profit is made. You may not have realized that you are losing money in some areas because you never looked at it by task, or unit, or project. You probably didn’t load proportionate indirect costs into the calculation either. If you take it down a level, you may find that the revenue associated with a task is actually less than your total cost for that task. If you know these kinds of facts, you can make adjustments and improve your bottom line. If you are happy just adding everything up and making sure that the cash coming in is enough to cover it, then you are probably leaving money on the table.
Don’t stick you head in the sand. Deconstruct, analyze, and track. You will see things you did not see before. When that happens, you are in a position to make positive changes that will grow your business in the future.