Do you remember summer as a kid? If you lived in the eastern half of the United States, your evenings probably involved catching fireflies. As you stand there in your backyard, jar in hand, you see the lightning bugs flicker their tails on and off.
Your legs spring into action as you dive forward to catch one of the illuminated creatures. A few seconds pass as you wait to see if your leap was successful. Nope! But undaunted, you keep trying.
Why, you ask, am I writing about fireflies other than to wax nostalgic about childhood? Because budgeting for a political consulting business many times feels like catching fireflies. They’re seemingly all around you, but as you keep trying to catch them in a jar, one or two seem to escape the jar for every one you put in.
Here are a few tips to help you contain a few more of the illusive “fireflies” as you create a budget for your firm.
Look at History for Fluctuations
Too often political consultants look at the bank account and think either: “I’m making money” or “Where’d all my money go?” This cash-balance approach to business is dangerous and unsustainable. You must have a written 12-month budget.
Start by looking at your revenue, costs of goods, and operating expenses over the past 24 to 36 months. Yes, you probably/hopefully made more in the even years. Now compare month-over-month growth (or contraction) and months during the time period (Ex: January 2014 to January 2015 to January 2016).
Put those Excel skills to use and chart all three key financial points – revenue, CoG, and expenses – to spot trends. This historical context will allow you to reasonably project baseline numbers for your budget.
Chart a Course Forward
Using the abovementioned data, fill in each line item in your budget for the next 12 months. Make sure you separate categories when possible. For example, don’t just have “income.” Split it up into the different streams of income you receive. That could be retainer fees, commissions, direct mail, etc. if you are a general consultant.
Begin by only putting in numbers comparative to what has been historically possible. Look at the gross profit (after cost of goods) and net profit (after CoG and expenses) you will generate each month. A good target is 15% – 20% net profit. If you aren’t anywhere near these numbers, it’s time to put in some stretch goals.
The goal of owning a business is to generate a profit and to create more of it each month. Though this is more challenging – hence: catching fireflies – with the cyclical nature of our business, it is possible to project future growth so long as you put in the work required. Hopefully your new 12-month budget shows you growing 20% or more from the previous year or cycle.
Save for a Rainy Day
While generating much more revenue six months out of every 24 months – the time around the primary and general election – presents challenges, it also creates opportunities. Any net profit generated above your budget should be put in a savings account. Yes, you’ll have to pay taxes on it if not used during a fiscal year, but there’s nothing more valuable in a business next to cash flow than cash in the bank.
The brightest investors buy when everyone else is selling. That is only possible if you have cash on hand. You could hire a new employee, prepay your rent, invest in the development of a new software. When you have a big ol’ bank balance, your options are plentiful.
Likewise, if you take out all that cash as distributions or dividends to you and your co-owners or investors, your firm is hamstrung when unique opportunities present themselves. Dave Ramsey, creator of EntreLeadership if you’ve never heard of him, recommends having three-months of business expenses in the bank – minimum. Make that your first goal, and then use resources above it for strategic investments, like team, tools, and training.
The business of creating and executing is traditionally much more fun than the business of business. But we can’t ignore internal operations, and budgets are foundational to business health and growth. How can you hit a future target if you have not painted the red and white rings somewhere first?
As the late, great Zig Ziglar said: “If you aim at nothing, you will hit it every time.”