1. Prepare a budget
   Many small companies don't set a budget each year, which is a big mistake. Without a budget it becomes extremely difficult to set goals and make decisions that will bring in a profit.
2. Adjust labor burden for the upcoming year
   Employees have all sorts of costs associated with them other than their salary that need to be factored into your job costs. Labor burden is the calculation of what those costs are, and includes FICA, unemployment taxes (FUTA & SUTA), general liability insurance, workers' compensation insurance, health insurance, retirement benefits, paid time off and holidays. Labor burden should be recalculated each year to include changes in these costs.
3. Reflect upon the previous year
   After a good year, it's common to assume that the next will be even better.  However, before you buy that new pickup you should think back to anything about the previous year that was unique. Did you land a huge job that sent your sales numbers soaring? Did you find a niche that will continue to be strong this year? Do you still have the people that contributed to your success?
4. Anticipate increases in overhead costs
   As a rule, your overhead costs will increase each year. Health insurance rates have been skyrocketing over the last several years, the IRS usually increases the mileage reimbursement rate, and utilities aren't getting less expensive.  When you're budgeting it's important to anticipate what those increases will be. If you don't really know what to expect, you can assume about a 5% increase for most costs.
5. Budget for cash
   Even if you're predicting a big year (and especially if you're not), it's essential to budget for cash. Said another way, you need to predict your month to month cash flow to find when you can expect to be low on cash.
6. Analyze production needs
   Before you declare your 2008 budget a resounding success, make sure you have what you need in terms of labor and equipment to produce the work you are anticipating. Will you need to hire staff? Or buy equipment? Be sure to include the costs associated with these resources in your budget!
7. Include non-cash expenses
   Expenses like depreciation, bad debt, and amortization don't have a big effect on your day to day operations, but come tax time they'll be very important. Be sure to include those expenses in your budget.
8. Anticipate increases or decreases in taxes
   If you're going to be making more money (or sadly less) in the coming year, be sure to budget appropriately for income tax expense. Don't forget that your State Unemployment Tax is adjusted each year. Changes in employees like hires, fires, and raises will also change your FICA, FUTA, and SUTA assessments.
9. Be realistic and honest about your budget
   Before you finalize your budget you really need to have a little chat with yourself. Are your sales goals actually going to be met? Will you really only spend $50 on meals and entertainment for the whole year? Are your salaries competitive? Do you really need a new truck? Avoid adjusting your budget to make the numbers look better!

Review monthly and adjust as necessary
A budget shouldn't just be something you make and then file away! Treat your budget as a guide to your financial decisions and review it regularly.

Compliments of:
Jennifer Strand
Think House Group, Inc.
info@thinkhousegroup.com