American Recycler, August 2009 - Salvaging Millions

As promised, this month I will explore the technique of bottom up budgeting.

I was proud to learn about bottom up budgeting in my stint at Ford Motor Co. after I sold them my recycling facilities in 1999.

It’s easy to just work on a budget, forecast some growth in sales or products, make the expenses fixed or variable relative to the sales, and then charge off to accomplish the goal. There’s the rub, hitting the goal.

Without bottom up budgeting and a bridge plan (another term you will find explained on our discussion boards or in a future article here), the chances that you will hit your goal are not good.

As you forecast increased sales, you must study the underlying metrics. In automotive recycling, if you forecast a 5 percent increase in parts sales, which seems achievable, how will your metrics measuring buying, processing, and deliveries/fulfillment be affected?

Unless you are going to process the same number of cars, but raise the price per unit, you will need to buy more cars. Can you buy more? Ask the buyers. Can you process more? Ask the dismantlers. Do you have the racks to hold more parts? Or are you planning faster turns? Do you need to add another salesperson? Will there be more deliveries or shipping?

All of these departments are likely to be affected, and unless you consider all of their metrics in the plan, and get everyone committed to pulling their oar, your plan is unlikely to succeed.

Bottom up budgeting is also a useful method for planning capital expenses like buying another dismantling lift, forklift, or even a new phone system to make your salespeople more efficient. Do your salespeople want the new system badly enough to commit to the 5 percent goal without another salesperson?

A restaurant has to consider table turns, cost of food, and the size of their coolers before forecasting additional sales. Do they have adequate parking for the new customers? All businesses, from restaurants to electrical contractors, need bottom up budgeting.

We routinely apply bottom up budgeting to increase the chance of success of initiatives in our industry specific Peer Benchmarking Review Groups. Would your business benefit from tapping 100s of years of industry experience? From getting the insights of the industry leading businesses for each of your key metrics? From getting fresh ideas on lowering expenses and raising revenues?

Visit our web site to learn more about joining an upcoming PBRG for your industry. To assure the groups are made up of non-competitive businesses, we only accept one business owner from each market. Make sure that it’s you.

Don’t forget to subscribe to Ron's free monthly auto recycling e-newsletter, with news and tips, register at www.autosalvageconsultant.com.

Ron Sturgeon is past owner of AAA Small Car World. In 1999, he sold his six Texas locations, with 140 employees, to Greenleaf. In 2001, he founded North Texas Insurance Auction, which he sold to Copart in 2002. In 2002, his book “Salvaging Millions” was published to help small business owners achieve significant success, and was recently reprinted. In June 2003, he joined the new ownership and management team of GreenLeaf. He also manages his real estate holdings and investments. You can learn more about him at WWW.autosalvageconsultant.com He can be reached at 5940 Eden, Haltom City, TX 76117, rons@rdsinvestments.com or 817-834-3625 ext 6#.