The No Excuse Way to Do Your 2013 Agency Budget

Dec 28, 2012

There are no more excuses. You are almost out of time. But even with just these few days left in the year, you can still put together a budget for 2013!

Budgets give you the vision of where you are headed and will provide you the compass to ensure you get to your goals. Budgets will make you aware of your performance and force you to reorient yourself to your business plan.

I said, no more excuses! No matter the size of your firm, if you want to be in business you must have a budget. The reality is “cash in the bank” is not a good gauge of where you are and whether you are profitable. How many times have you had that false sense of security only to have it diminish after the next accounts payable and payroll run? A working budget will allow you to work with intentionality and focus, and will help alleviate the peak and valley production cycles. And I believe those peak production cycles are what make budgeting so critical to our industry. Budgets will help remind you that you still have a business to run.

I’ve seen a lot of budgets in my life; most achieve complicated status. My recommendation is to keep it simple and keep it real. After many versions with my office, I have discovered a very easy way to develop a quite user-friendly budget. Here is an explanation of my process.
Agency Budget Template

First, the Past

First you must start by analyzing the past. Begin with printing out your income statement for the last 12-month period (most likely November 1, 2011 to October 31, 2012). This statement will have all your revenue and all your expenses. The net of revenue minus expenses will provide your net income. Next, take this 12-month period and divide by 12 to come up with a monthly average. This monthly average becomes a great starting point, which, with a few tweaks will become your 2012 monthly budget.

Now, Tweak the Numbers

The first tweak is to compare the average monthly budget numbers to the last monthly income statement. What you should look for are any significant differences from the average to the most recent month’s activity. This will provide you a basis to modify the average estimated number to become your new budget number. Most of the time, I find this process brings out those things that may have changed during the last 12 month period. For example, rent increases, salary increases given to your administrative staff, and just general changes that may have occurred in your operations during the past 12 months.

Adjust For Future Changes

Now you should be seeing a clearer picture of your current operation. And it’s time to look into your crystal ball and adjust for planned changes. This is where you have to develop educated estimates. For example, you have to address these operational questions:

  • Do you plan to add staff during the year?
    • Administrative
    • Research
    • Producer
  • Do you foresee any changes in expense items?
    • Rent
    • Equipment needs/purchases
    • Changing any benefits provided to your employees
    • Contracted services such as accounting or legal
    • Other expense items

With these questions and answers you then adjust the monthly budget numbers. The result will be a completed “current” monthly budget. I annualize these numbers by multiplying by 12. This becomes your annual budget.

One more trick, if you study our financials, there are four major items that affect our businesses. So what I do is create (in Excel) four input cells and build cell formulas which will recalculate my income statement based upon the following:

  • Head Count: Will affect variable expenses such as; health insurance, 401(k) contributions, and Payroll taxes. This will also impact revenue utilizing Per Desk Average.
  • Per Desk Average (PDA): Will affect revenue.
  • Cost of Commissions: I find this expense may increase during periods of growth, i.e. draw losses increase from your hiring activity. Also, this ratio will be impacted by the ratio of tenured producers to rookies, i.e. tenured producers usually will have higher production and therefore a higher commission payout.
  • Personal production: Personal production will be impacted based upon your personal goals. Also, during periods of growth for the office, your personal production will usually fall.

With these four input cells you can play around with your budget doing “what ifs.” Studying these effects will provide valuable information and guidance to allow you to better manage your firm in the future. It is very interesting when I look at the impact of adding head count or increasing the PDA and it helps prioritize my time in training based upon what I need in order to operate at top efficiency.

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