My fellow managers at the hospital and I got that deer-in-the-headlights look every year it was time to develop the next budget. It was our annual torture, when we asked for the stars but willingly accepted the moon instead. We spent many hours frantically engrossed in mathematic calculations.
As the years passed, it began to dawn on me that budgeting doesn’t have a season. It’s an ongoing process requiring constant work and careful planning. The short budget preparation “season” given to me by my organization is actually the time needed to put the carefully prepared plan onto the appropriate forms and turn it in for review.
I prepare four types of budgets every year: Activity, Revenue, Capital and Operational.
The first and most important step in developing a budget is accurately forecasting the amount of linen you’ll need to process. This is normally done in pounds, but knowing how much of each linen item type you’ll need to process is valuable. The poundage projection is the key driver to all of the other budgets. Volume directly drives Revenue and Operational, and is a key component of Capital.
I’ve found that by creating a spreadsheet that tracks the pounds produced per month versus the budgeted pounds, I can accurately report any changes in activity and quickly project the coming budget year.
I run a central laundry serving more than 216 customers. We track the pounds billed by customer monthly as well as the total pounds produced. In one column I divide the year-to-date (YTD) figure by the number of months so far and multiply by 12. I can then compare budgeted pounds by account versus projected pounds.
I also use the spreadsheet to track revenue by account. Some customers are charged by the piece, some by the pound. This spreadsheet converts them all to a revenue-per-pound basis. Once again, we track budgeted revenue versus actual revenue. It’s helpful to see which accounts are growing in activity month by month and which are shrinking.
I realize some in-house laundry operations don’t have revenue but are simply looked at as an expense. Most shared-service laundries and laundries serving multiple customers will need to create a revenue budget. The monthly spreadsheets will also help keep you abreast of changes and trends and provide thoughtful answers to questions from upper management.
By tracking revenue by account every month and making notes when prices change, it’s relatively quick and easy to project the next year’s revenue budget.
In the past, I waited until I was asked to develop the capital budget and then tried to do it all in four weeks. My costs were often incomplete, and I missed some equipment I really needed because I was trying to do too much in too short of a time.
For the last decade, I’ve actively looked ahead to determine which equipment I needed to add or replace. I’ve asked for suggestions from various vendors and equipment dealers. I’ve tried to develop detailed plans on how the equipment is to be installed and logged current cost data.
I review my project folder several months before budgeting time and update all cost information. I provide my boss with a five-year capital plan showing projected equipment replacement costs each year. I submit detailed justifications for each new or replacement piece of equipment in the year it’s requested.
I’ve recently become aware of several laundries that are in danger of going out of business because management didn’t properly maintain or replace equipment as needed. Major equipment failure or substantial downtime can lead to textile shortages and unhappy customers. Breakdowns also increase labor and maintenance costs. The key to avoiding these problems is to develop reasonable capital budgets annually.
The operating budget is the one most familiar to all of us. This is where we project, based on our activity budget, how much labor, energy, linen and supplies we’ll need to properly process the projected workload.
Most of these expenses are what I call directly variable expenses that will fluctuate up or down based on the projected activity level. The more pounds of linen we have to wash, the more washroom chemicals we’ll use.
If we’ve accurately projected the activity for the coming year, this budget is quick and easy to prepare. Depending on your organization, either accounting will provide you with the amount of inflation per account or will add it later.
A few of your accounts in the operating budget, like dues and subscriptions and telephone expenses, won’t be directly variable. Project these by looking at experience without concern about activity.
By treating budgeting as a part of the overall, day-to-day management function, the period given to develop a budget is no different than any other time of the year. You’ll quickly transfer projections and figures onto your budget worksheets with little or no stress.