“Time keeps on slippin’, slippin’, slippin…” So says the legendary Steve Miller. I don’t know if Mr. Miller ever owned a small business, but those words speak volumes when it comes to the success or failure of your shop. Looking forward and planning ahead is crucial to maintaining momentum and building on your current success.
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This means approaching the fourth quarter of every year differently than the previous three quarters. Certainly you want to stay on top of your profits and losses each month, just like any other month. But you also need to dig deeper. Here are the three primary areas where I dedicate most of my time during the all-important fourth quarter:
1. Evaluating and adjusting costs
2. Staffing
3. Writing a budget for the upcoming year
Every year, shops can get bloated with overhead, whether it’s related to utilities, office supplies, uniforms, excess merchandise, etc. The fourth quarter is the time of year I review my vendor contracts, negotiate credit card fees and analyze my overall utility costs. If I have extra inventory, I sell it on eBay or Craigslist. I go over every line item, comparing costs, seeing where I’m being efficient and where I’m wasting money.
This has to be done every year, because costs change from year to year. One year you might find your utility costs are appropriate, but the next year, they might soar and significantly cut into your profits.
The point is, you want to restructure your expenditures so there is little to no waste and you want to start every year with a clean slate.
Staffing
As you know, business in the fourth quarter generally is slower than other times of the year. I use this time to review my staffing needs. It’s hard to hire good technicians, good managers and other quality staff when shops are busy. But as business slows, you’ll find a lot of quality, potential employees looking for work.
My goal is to upgrade my talent whenever possible and whenever appropriate. If you wait until you are busy to try to find quality employees, you could find yourself low on options.
Balancing the Budget
Simply put, your budget is your game plan, your strategy, you roadmap to success. Writing a budget isn’t that difficult, as long as you’re honest with yourself.
There are two main problems I see all the time when shops write their budget for the new year. First, shop owners write their budget and then simply put it aside and forget about it. The second problem is that shop owners aren’t realistic or honest about their cost and profit projections.
If you’re going to take the time to write out a budget, use it! Use it to track your progress. I constantly am comparing my monthly profit and loss sheets to my budget. If my budget has set aside $500 for a specific item, then I check my daily reports to make sure I’m staying on track. If not, I make adjustments so I hit my budget targets. Without a budget as a benchmark, it’s difficult to see if your shop is making progress.
When it comes to your projections, there is one simple rule I live by: Be honest. The problem with most of the budgets I see is that shop owners inflate their sales projections so much that after a few months, they just give up because they’re so out of whack.
When I write my budgets, I look at my previous three-month trends as well as my comparable year-to-year monthly profits and losses. If I have a three-month period trending down, then it’s wishful thinking to project a 20 percent increase in sales unless I also factor in costs for advertising and marketing to reverse that trend.
I also look at the previous year’s profits and losses. If I see a 5 percent increase in sales in January, February and March, then I stay with a 5 percent projected increase in sales for the upcoming first quarter. Again, unless I’ve built in a plan to increase that trend in sales, why project a 15 percent or 20 percent increase when it’s not realistic?
Inflating your sales projections is a bit like making a New Year’s resolution. Often, it’s simply hoping for something better.
One other important thing to keep in mind when writing your budget is don’t cut back on good people, advertising or marketing. In other words, don’t cut back on anything that actually makes you money.
Speaking of employees, I find that my shops are able to better stick to a plan if the employees know and understand the budget. Show your employees your quarterly goals, your cost and profit projections and set rewards for departments that are able to stick to the budget plan. If you work together with your employees, you’ll find it easier to stay in tune with your costs.
Here are five things to keep in mind when writing your annual budget:
1. Write a budget that is attainable.
2. Track your budget every single day.
3. Train all of your employees and make them aware of the budget.
4. Give weekly, monthly and quarterly updates to your employees.
5. Institute a small bonus if the team meets budget projections.
Because I know writing budgets can be difficult, particularly for those who don’t have much experience in writing them, I’ve made basic copies of my budget template available to anyone who wants to view it. Simply email me at [email protected] and I’ll send you a copy of the budget template.
Remember, the fourth quarter isn’t just the end of a long and (hopefully) successful year, it’s really the beginning of a new year of challenges and opportunity. When you look at it like that, the fourth quarter is perhaps the most exciting time of the year.
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