Even without reliable records, most owners can estimate these numbers. When starting at the top, says Judith Miller, a Seattle–based business consultant and trainer, “Begin by asking, ‘How much can I sell? What will it cost to build those projects? What’s left over?’” In the bottom-up method, Shiner says, “Start by asking, ‘How much do I need to take home?’” Then look at what it costs to pay employees. The fact is, the process is circular and requires both a best guess at expenses and a “What If” approach to revenue and gross profit targets. You can build a budget from the top down, starting with estimated revenue and calculating how much in expenses you can afford, or from the bottom up, beginning with expenses and determining how much revenue you will need to meet them. You pick some numbers and you just do it. As financial and management consultant Leslie Shiner says, “Being close matters, but you don’t have to be exact. Either way, something is better than nothing. And if you’ve never built a budget before, this kind of “zero-based” budgeting is a good place to begin. But market volatility in recent years has many veteran remodeling company owners starting from scratch. Next year’s budget typically builds on what happened last year it’s essentially an exercise in year-over-year comparisons. And a budget ensures that you know before the year starts what you need to do to earn the salary you want and the profit you expect. A budget is also essential for decisions about hiring additional employees, for determining raises and bonuses, and for planning a benefits package. It is a tool for setting sales targets and for making adjustments as market conditions change. A budget is more than just an estimate of total company revenue and expenses for the year.
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