Operating Budgets

Operating Budgets

The calendar is clicking off the months and we find that fall is in the air. Fall means a lot of different things to people. From a business standpoint, this is the time of the year that our thought process needs to start looking towards the coming year.

October starts the 4th and final quarter of the year. We have 3 quarters of sales, buying and expense results data in hand. With 9 months in and only 3 to go, we should have a pretty good idea of how the year is going to shape up. Will 2019 be remembered as a good or bad year?

The start of the 4th quarter is the time we should be making all of our plans and overall objectives and goals for 2020. Our costs to operate our businesses tend to rise annually so we need to grow sales to match that at a minimum. Most of us would like to grow at a much greater rate than that. What is the rate we want to increase sales for the next year? Once you get a handle on that number, it is time to start looking at how that is going to be accomplished.

We have the ability to directly correlate our salvage purchases to our in stock sales. This allows us to then see how much more inventory / vehicles needs purchased in order to achieve the sales goals that have been laid out. Once there are clear cut buying numbers to target, the cash requirements can be examined. We can have the loftiest goals but without the cash needed to buy the inventory, we will have trouble executing the plan.

Brokered, freight, core deposits and warranty sales percentages are all driven off of your in stock sales so once you have those goals, you can calculate how much you are going to expect in sales for each of those categories. Once you have each of those numbers using your historical percentages, you add them to go and you will have your total parts sales goals for 2020.

Once you have your sales numbers you can look at the people requirements for the number of vehicles you will have to dismantle, number of brokered parts to handle, shipping and work your way thru the various areas of the company to see what each department can handle. Staffing in today’s market is challenging so you cannot wait until you have a need for help. Predicting your needs and looking early is key.

Examining the staffing needs ties directly into a deep dive into the expenses. You should always have something targeted for improvement year over year on the expense side. Office & yard supplies are two areas that we can often save a little by watching what is being purchased a little closer.

When you have finished predicting your sales and examining what you will be spending on salvage and expenses, you should be able to predict how much is leftover. That leftover amount is better known as the profit or the whole reason why we do this in the first place.

We can also call this the budgeting process. It is October and the time to create your 2020 operating budget is here. You should be working on it and have it ready by the end of the year. Please let us know if you need any help on this. Remember the old adage that failing to plan is planning to fail!


Mike Kunkel         Lee Worman

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