How to Forecast & Build a Budget

Ahoy there, mateys! It’s your friends at Fullbay, here to help you make the most of your end-of-year planning in a way that will get your shop’s 2023 started on the right foot.

Today, we’re going to talk about forecasting growth, building a budget, and why both are important for your shop. Since these are topics that can make a lot of shop owners nervous, we reached out to an expert for help: Fullbay’s Vice President of Finance, Robert Gilbert.

Why should I bother with forecasts and budgets?

Let’s back away from the term forecast for a moment, because it has weird weather connotations. A forecast is a prediction, or an educated guess. Unless you’re brand-spanking-new, you’re going to base your forecast off prior performance—like how you did in the last year.

When you forecast your growth, you’re estimating your future financial performance. You may not be right on the money (pun intended), but you’ll have some idea of what to expect. You do this, says Robert, “by being as data-driven as you possibly can.” Forecasts help predict where you are headed based on what you have done in the past.

Think of it as busting out a spyglass and using it for a look off into the distance (aka at the future), and then making decisions that will help you get to that point.

Your budget is your goal for the future and the plan on how you’ll get there. It is informed by your forecast, but doesn’t necessarily have to be your forecast. It is really what you want to accomplish.

Yes, they’re two separate concepts, but they impact each other. One constantly informs the other. And if you devote the proper amount of time to them, you’ll help your shop put its best foot forward in 2023.

How to forecast your growth in 2023

Remember how much we stressed evaluating how you did in 2022? Yeah, you need that information to properly forecast. If you’ve got good records dating back further, you can look at those to perhaps create a more accurate picture, but for the purpose of this article we’re sticking to 2022-2023.

You’ll look at things like:

• Your revenue.
• Your expenses—payroll, insurance, overhead, taxes, all those good things.
• How many customers you have vs. how much work they bring in, and any new contracts on the horizon.

You don’t necessarily have to do these in any order. “If you’re in a growth mode, you might start with revenue,” Robert says, but notes that it may not matter.

Next, start looking at changes that occurred in 2022 that impacted the above. Changes don’t necessarily have to be revenue-killers, by the way. Here are a few to think about:

• Rent increases.
• Inflation.
• Changes to the BIT, DOT, or other inspections that can lead to more work for your shop.
• Changes in your marketing campaign (or kicking off a marketing campaign if you don’t have one) and the expected increase in revenue that may yield.
• Adding additional services like emergency roadside assistance, a mobile branch, and so on. What will your expenses related to these services be? What’s their expected ROI?

With this information in hand, you can create a solid estimate of how much revenue you can drive in 2023, along with what kind of expenses you can expect.

This is also where you decide how much you want to grow. Now, growth looks different to everyone. You might want to:

• Hire new techs.
• Expand into a new building.
• Give everyone raises.
• Increase your revenue by 30% each month.

Some business owners see success in building two forecasts: a conservative one and an aggressive one. The former, unsurprisingly, is what your plan might look like if the market drops, or your expenses skyrocket unexpectedly, or things otherwise go pear-shaped. Your aggressive forecast is the exact opposite—everything goes your way, and the sky’s the limit as far as revenue goes.

You’ve got your forecast. It has informed your goals.

Now you’re ready to budget.

How to create a budget for 2023

You can think of your budget as your map to buried treasure. The treasure being the growth you want to attain in 2023, savvy?

“Your budget reflects what you want to do next year,” Robert clarifies. “It’s your plan to make it happen.”

Do you want to grow revenue in 2023? Take a look at your marketing plan. A slick, professional website and a solid Google Business and social media presence is the way to introduce your shop to potential customers all over the country. You’ll want to set aside a component of your budget for marketing. The good folks at Dieselmatic suggest setting your marketing budget at 3-5% of your target revenue goal. Look at your forecast and start allocating. (And check out Dieselmatic if you’re ready to up your marketing game—they can get a beautiful new website up for you in about six weeks, and have you ranking for search terms a month after that.

You should also aim for a healthy rainy day fund for emergencies. The general rule for individuals is to have around six months’ worth of savings in case you get laid off or have an unexpected expense (yes, we recognize that’s not always possible, but bear with us). Your shop should have a similar financial cushion that you only touch in emergencies.

Technicians always need to be paid, and equipment needs to function. If, say, a lift broke and you needed to get it repaired or replaced, could you still cover payroll? Consider expenses like that and make sure your budget includes contributions to your emergency fund. Aim to build it out to three to six months.

Get planning!

In closing, Robert advises us to keep it simple. “If you overcomplicate [your plan], you’ll never use it.” That’s why we’ve made this more high-level than nitty-gritty. You’ve got to plug in your own numbers and your own hopes and goals for 2023—we can’t do that for you.

What we can do, though, is help your techs do their best work. Repair shop management software (like Fullbay!) helps them work more efficiently and productively. It makes estimating and invoicing—two noted time drains—easy, freeing your techs up to actually handle wrenching and drive more revenue. We suggest adding it to the budget as a tool.

We’ve got one more article coming that should help you plan for a successful 2023. Stay tuned, and until then, get forecasting!