1. Start with projected spending
Try building your budget from something you can control: projected spending. Divide expenses between hard costs (typically about 70% of a project's budget) and soft costs.
2. Find trends in your data
Start with your most recent income statement and adjust after reviewing income statements from the past several years to uncover trends in:
- labor burden
- direct costs
- operations support
- sales and marketing expenses
- administrative overhead
Don’t forget to check gross margin trends, which is just as crucial to refining a budget.
3. Keep projections realistic
One recurring reason contractors fall short of profit goals is overconfidence. Look for business improvements in your company’s records. If you haven’t reduced turnover, purchased new equipment or employed strategies to mitigate the risk of downtime, it may be unwise to budget assuming you'll see productivity continue to increase.
4. Settle project financing
Securing full financing before a project starts isn't easy, of course, but it can prevent a world of budget issues. Take time to ensure you're financially capable of accepting a contract. Also, budgeting software can help manage money and reduce likelihood of delays.
5. Schedule preventive maintenance
Waiting for equipment to fail risks delays and added expense. If you’ve postponed preventive maintenance, it is crucial to develop a program as soon as possible.