Budgeting Success for the Manufacturing Industry
When a manufacturing company doesn't have a clear idea of its annual budget, it runs the risk of spending more money than it earns in a year. Even if production has been running smoothly for years, one small change can alter the entire financial picture. Money may be coming in, so all seems fine, but without a handle on expenses versus income, you can quickly find yourself in the red.
Or, perhaps you want to apply for a business loan. A bank will need to see a formal budget as part of your business plan to consider the application. No matter where you are in the evolution of your manufacturing company, you can benefit from a formal budget.
Creating a Basic Budget
Budgeting can be accomplished in different ways with different processes, depending on the particular business and the people involved. Talking to a financial expert with experience in manufacturing always will be beneficial. Several universal parameters within a typical budget plan, however, can provide a foundation. For instance, most businesses make a rent or mortgage payment on their premises.
Next, basic overhead costs, such as utility bills, payroll expenses, and raw materials need to be considered. You’ll also need to factor in interest, insurance, and tax payments. As a manufacturing operations owner or manager, you likely know these things, but have you considered some of the softer expenses, such as website development, signage, business cards and advertisements?
You can use these initial elements when developing a budget plan and can add any expenses that are specific to manufacturing along the way. For example, your production facility may need to consider:
- Salaries, wages, and benefits for you and your employees
- Supplies and inventory
- Loan and credit card payments
- Services such as accounting, maintenance, and marketing
- Machinery and vehicle or equipment payments, fuel, and insurance
- Safety equipment
If you are just establishing your manufacturing facility, you may need to research your estimated monthly expenses. If your business is already established, you can base your assumptions of future costs or revenues on your past 12 months of figures.
A typical 12-month budget can be updated with actual expenditures and revenues each month so you know whether your goals are on target. Many plans feature one column of estimated expenses, with an accompanying blank column where manufacturing companies can plug in their actual expenses each month to track and compare.
Reaching Your Goals
If you are not reaching your planned targets, you can use your original budget to troubleshoot by identifying ways to reduce overall expenses such as labor or new machinery, to increase your sales with more aggressive marketing, or to lower your profit expectations.
By charting a comprehensive budget plan, you can enhance your chances of your business succeeding by anticipating future needs, spending, profits, and cash flow. A good budget provides a detailed road map so that you are not driving your production company blindly. When done correctly, it will provide clear insight into how your business is performing to help you achieve growth and success.
If you want more details on getting your budget going, MHCS a call.