Setting a budget doesn’t come naturally to most workshop owners who are typically too busy running their businesses. The prevailing attitude seems to be that the harder they work, the more profitable the business will be. While this attitude has some merit, it is an undeniable fact that those who spend the time planning and setting a budget will achieve a better result than those who don’t bother.
A P&L budget can be broken down into two distinct sections: forecasting revenues and forecasting expenses. Subtract one from the other and you will have a profit or loss forecast for the financial year. Pretty simple.
Forecasting revenues
When setting a sales target, the easiest thing to do is just look at what you did last year and add some more. This is okay but there is a better way, and that’s to forecast revenues based on the team you have in place and the output you believe that team can achieve.
When forecasting sales targets based on the team, you must take the following into consideration:
- How many labour hours do you think your technicians can sell, taking into account their qualification levels, other tasks they do in the workshop and their historical output?
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How many weeks on average do you think your team will work? There are 52 weeks in a year, but you will lose 10 days to public holidays, 20 days to annual leave and five days to sick leave. Therefore, on average a staff member will work around 45 full weeks.
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What is your average labour rate for the coming financial year? Some workshops have different rates for trade customers, general repairs and diagnostics. In this case, just choose an average.
- Parts sales will be directly influenced by labour sales. Most workshops work on a one-to-one ratio. For example, if they sell $100 in labour, they will generally sell $100 in parts.
Using the above methodology and four categories, the table below forecasts a sales revenue goal of $573,300 for a two-person workshop.
| Labour Sales | Technician 1 | Apprentice (2nd Yr) | Total Staff |
| Target Invoiced Hrs per Week (1) | 34 | 15 | 49 |
| Forecast Working Weeks per Year (2) | 45 | 45 | 90 |
| Hourly Labour Rate (Exc GST) (3) | $ 130 | $ 130 | $ 130 |
| Total Forecast Labour Sales Revenue | $ 198,900 | $ 87,750 | $ 286,650 |
| Parts Sales (4) | $ 198,900 | $ 87,750 | $ 286,650 |
| Total Forecast Sales Revenue | $ 397,800 | $ 175,500 | $ 573,300 |
Forecasting expenses
Forecasting expenses is relatively easy if you have last year’s numbers in front of you. If you don’t know how to access your P&L statement from last year, ask your bookkeeper or accountant to run one for you.
Simply work through each expense category and based on the information you have on hand, forecast what you think the expenses will be this year. If you can’t see any reason why it will be significantly different, just add four per cent or five per cent to accommodate inflation. Your highest two numbers will be rent and wages, so take a little more time to accurately reach your forecast for these items.
Unexpected expenses pop up every year and to cover these, create a miscellaneous category and add an additional five per cent to ten per cent of your total forecast expenses.
This table forecasts total expenses for the financial year of $311,440, a ten per cent increase on the previous year.
| General Expenses |
2022-23 Actual |
2023-24 Forecast |
$ Change | % Change |
| Accountancy Fees | $ 2,600 | $ 2,704 | $ 104 | 4% |
| Bank Fees | $ 7,972 | $ 8,291 | $ 319 | 4% |
| Electricity | $ 3,227 | $ 3,356 | $ 129 | 4% |
| Insurance | $ 39,064 | $ 40,626 | $ 1,563 | 4% |
| Maintenance and Cleaning | $ 3,277 | $ 3,409 | $ 131 | 4% |
| Rent | $ 65,000 | $ 67,000 | $ 2,000 | 3% |
| Repairs and Maintenance | $ 3,851 | $ 4,005 | $ 154 | 4% |
| Salaries and Wages | $ 142,000 | $ 155,000 | $ 13,000 | 9% |
| Superannuation | $ 14,910 | $ 17,050 | $ 2,140 | 14% |
| Miscellaneous | $ - | $ 10,000 | $ 10,000 | 100% |
| Total General Expenses | $ 281,901 | $ 311,440 | $ 29,540 | 10% |
Net profit/loss target
By subtracting forecasted expenses from forecasted revenues, you will be left with a forecasted profit or loss. If you like the result, you now know what it will take to achieve it. If you don’t like the result, review your forecast to see if changes can be made.
Monthly review
It’s critically important that each month you review your P&L to see how you are tracking against the budget. Failure to do this means the whole exercise would have been a waste of time. Realistically, setting a P&L forecast will take a couple of hours. Trust me when I say these hours have the potential to generate more income than if you spent the same number of hours on the tools fixing cars.
