Budget Season Is Upon Us
My client base continues to grow, the markets are trending higher lately, and I secured another financial planning engagement this week. All of these are positive signs, but growth brings with it increased responsibility and a greater need for operational efficiencies. Growth also brings to the forefront the need to revisit the ol’ business budget to see if actual income and expenses are tracking with your projections.
I can remember having to create a budget for a bank subsidiary for which I was responsible. The very first thing that experience taught me is expenses are much more predictable than income. With this in mind, I’d like to discuss, in general, my business expenses and ask you, the reader, if you have any sage advice you’d be willing to share.
But first, I’d like to share some background.
When I started out as an independent advisor, I had no rent as I operated out of one of the bedrooms in my house. The only monthly expenses I had were two phone lines–one for phone and one for fax–a subscription to Morningstar’s “Enterprise Edition” tool, and some basic office supplies.
Around June 2008, I upgraded to Morningstar’s Office Edition so I could add performance reporting and enhance my research capabilities. I signed a lease on an office in August 2008 and added E&O insurance. Finally, in January 2009, I moved next door into the newly constructed office where I now hang my hat.
Here’s a breakdown, by percentage, of my current monthly business expenses.
|
Expense |
% |
|
Rent |
43.5% |
|
Utilities (Electric) |
2.0% |
|
Phone/DSL |
9.0% |
|
E&O Insurance |
2.5% |
|
Health & Dental Insurance |
11.3% |
|
Morningstar Office Edition |
15.5% |
|
CNBC Plus (Live CNBC-TV on my computer) |
0.4% |
|
Quotestream (Analytical Tool) |
0.9% |
|
Hostgator (Web Space) |
0.4% |
|
Office Expenses (Supplies) |
1.8% |
That’s the majority of my business expenses. I also have some expenses which occur less frequently. For example, I pay dues to maintain my CFP, AEP, and other designations. Additionally, I may take someone to lunch.
What does your budget look like? If you have any ideas to share, I’d love to hear from you.
Just as it is with investing, one sure way to increase returns is to reduce expenses.
Thanks for reading!
Any advice I can give is subject to the purpose of your pro forma. You have to tailor your information to your targeted audience. If this is about budget control and cash flow analysis we defintely need more information. If it’s about getting financing from some source we need to see your salaries. If it’s about taxes we need other information still. Percentage of total budget is not enough when each independent business is different in clientel and practice.
Just use common sense and some of yur special CFP training to determine what looks right. My firm (in start up phase) is very different in that I must include a substantial amount for education (MA in Economics). I specialize in real estate and preparing clients for homeownership and property investments. I target my real estate clients, fellow Realtors, and small and meduim sized businesses for retirement planning as a gateway for additional busiuness with their employees. I also consult in international businesses and venture capital. I have over 10 year experience in business development activities in Africa and 8 years in the military in a human and business development capacity.
I have to structure my LLC with 3 different income sources (units) to asess where my money is going and how to spend it better. Real Estate, Business Financial Planning Consulting/ Research, and Personal Financial Planning. I keep them separated and track every penny.
Mike,
I have added my numbers for comparison. I also have retained an accountant to handle my books for $300.00 per quarter and have included my cell and auto at my accountants recomendation. My wife works at the school district so I am able to be under her insurance.
%
Rent
43.5% 19%
Utilities (Electric)
2.0% 0
Phone/DSL
9.0% 6%
E&O Insurance
2.5% 2.1%
Health & Dental Insurance
11.3% 0
Morningstar Office Edition
15.5% 0
CNBC Plus (Live CNBC-TV on my computer)
0.4% 0
Quotestream (Analytical Tool)
0.9% 0
Hostgator (Web Space)
0.4% .3%
Office Expenses (Supplies)
1.8% 1.2%
I have Bloomberg News live on my computer and it is free. Just go to bloomberg.com and connect to the TV section. I have found like yourself this provides a great way to keep abreast of what is going on in the word and market. Also it is free.
Regards,
Donald
Thanks Donald! I’ll check it out.
Hi Donald,
I checked out Bloomberg TV and will watch it for a while to see if if meets my need. It isn’t as clear as CNBC-TV. Do you have any issues with Bloomberg’s clarity? I do like the fact that they air the commercials. That’s probably how they offer it for free.
Mike,
Thanks for the blog. I am also a new advisor. Your blog really helps. I have a questions. What software do you use for your financial plans?
Hi Rico,
I use MS Excel. In other words, I created my own.