Reason No. 1
The first reason is because a lot of you did not do a budget for this year and maybe not for all of the previous years that you have ever been in business! So, as a first step, let’s admit to yourself and to your company that you haven’t done as good a budgeting job as you should have done in past years.
The next step to take is to explain why a budget is important to both your success and the company’s success. When you run a company, the owner of all people knows that the company must do what has been estimated on a job or it stands a good chance of not making the needed profit. We also know that most of the jobs that the company does do not come in at the profitability that they were bid at. In addition to that, the amount of the differences varies a great deal. Most of the expenses in business are fixed or can be fixed - if the company works at it. As we know, the biggest variable in a job is usually the cost of labor. That being the case, when the job is estimated in Xactimate for example, it tells everyone how many hours have been estimated to do the job, the cost of material allocated to complete the job, what the subs will cost and any other oddball item that is required to do the job as estimated. So every estimate has budgets for each phase by room needed to complete the job.
As an owner, aren’t you expecting the estimator to bring the estimate in just like they estimated it? I can assure you that if each of your jobs comes in on budget, you will be a much better company in the future than you have ever been in the past. So let’s take this logic and apply it to your past performance regarding not operating with a budget. It means that you will have to admit to your company and yourself that you will be expecting improved performance from them and they can expect the same from you.
Reason No. 2
The second reason for preparing an annual budget is so you can involve the rest of your team leaders into setting the budgets for their portion of the company that they are going to be responsible for in 2015.
The most important part of being a leader is to get each of your team members buy in as to what you expect and need from them. The key is that they have to agree with you as to what you expect them to do. It must be prior to setting the budget and they must see it as a task that they can achieve through their efforts. They can get others to help assist them, but they need to own it and take responsibility for achieving the goal that they bought into.
When you first started the company, you did all of the tasks, because you had the time to do it and you were therefore capable of doing the work without help. As the company grows, it’s kind of like a tree growing. When it’s small, it’s easy to put your arms around the trunk of the tree and clasp your hands together. As the tree grows, you reach a point when you can no longer clasp your hands together around it. Unfortunately, a lot of owners still think they can do what they did earlier in the growth of the company and do not want to admit to themselves or to others that they are not able to do the job as it needs to be done now. A leader who admits that their team member can do the job better that they can is an enlightened and successful leader that can look forward to having responsible help to assist them in growing the company.
Reason No. 3
The third reason for preparing an annual budget is to plan for what you and your team will be held accountable for and responsible for in the next year.
In order to run a successful and profitable company, you need a team that you can count on, so as to allow you to work on the business while they work in the business. As you grow the company, it has a lot of the characteristics of a snowball rolling downhill. Someone has to be working on the business and keep it heading and growing in the correct direction. If you do not do this, the snowball will venture off course and break apart. As a company is progressing, the owner is usually not capable of doing all of the functions necessary to keep the company successful and profitable. Using the budgeting process, you know what your team members are responsible for and, more importantly, they know what they are responsible for. As their leader, it becomes your responsibility to help them and coach them to achieve the goals that they have committed to and know that they are responsible to complete. Indeed, they will feel that they have “skin in the game.”