Luxury Coach & Transportation

January 2017

Magazine for the professional limousine, charter and tour industry.

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Page 28 of 93

LIMOUSINE, CHARTER & TOUR JANUARY 2017 25 long Thanksgiving is slow, so we let staff take time off, which didn't reduce costs, but ate up some vacation time during a slow period." One piece of advice Fertig offers own- ers is to build your salary into the budget. "l learned early on from other operators to pay yourself a respectable compensa- tion because that's important. You work hard, and at the end of the year, you have managed a budget that makes the com- pany profitable." — consider revising your budget to be more realistic if you have had a major loss, such as losing an account." Expect The Unexpected Another example of a budget buster is if you have accidents through the year and high deductibles that must come out of your pocket, which can throw a wrench into a tight budget and cash flow. Sorci notes six examples of unexpect- ed expenses that can seriously impinge on a budget: 1. Overtime (see sidebar) 2. Lawsuits 3. Loss of a major account 4. Not enough capitalization 5. Insurance increases 6. Disasters "Unexpected costs not factored into your budget can seriously disrupt your cash flow if you are not prepared for such costs," Sorci says. Lawsuits and natural di- sasters happen that can trigger cash flow problems plus insurance hikes, and com- petition from TNCs can stretch the budget rubber band if you are not prepared." A Living Document Adds Richard Fertig, who launched Bril- liant Transportation in New York City in 2010, "Most people look at their budgets backwards when they should be looking at it on a weekly basis, or even daily, so there are no surprises at the end of the month." A former hedge fund manager with a finance MBA from the University of Pennsylvania Wharton School, Fertig understands how a budget is a working document that needs to be relied on and adjusted constantly to ensure profitability. "If you see you are having a bad month, you need to react and do some- thing about it to stay on budget," Fertig says. "That may mean running specials or handing out flyers, or whatever it takes to bring in business to make up for any shortfall. Suppose your heating bill comes in at $1,700 and you only bud- geted $1,000? What are you going to do, just sit there? A budget isn't just numbers; it has a real purpose to help you run a profitable business every month." He points out a budget has to consider such variables as fluctuating fuel costs, slow periods, and other factors that can affect profit and loss. "For example, the WATCH FOR THE SILENT BUDGET KILLER Former CFO and industry consultant Ron Sorci points to one line item that quickly can become the silent killer of a company's operational bud- get: Overtime pay. "More companies struggle with managing overtime because it creeps up on you during any given week and operators don't budget for more than an employee's 40-hour work week." Sorci notes overtime costs create the most head- aches for operators of all sizes because it's not factored into their budgets. "Nobody seems to budget it, and then they are surprised when they have a larger pay- roll that affects cash flow." For example, he says a dispatcher may not have enough chauffeurs during a busy time period and decides to keep them working longer hours to handle the volume, or on standby in case of client ASAP calls, or other unexpected business such as affiliate runs. "I love to pay overtime — as long as it's directly tied to revenue," operator Rich- ard Fertig adds. But he cautions overtime can be a killer if operators have to pay time and a half, or in California, where he also does a lot of business, double time after 12 hours. "Operators need to factor in all the workmen comp costs with overtime because that $15 an hour hourly rate is now $30 an hour, and that eats into profit margins and causes negative cash flow. "You'll see operators look at their P&L statements and they wonder why they didn't make a profit that month. Well, hey, you didn't plan for overtime costs that didn't drive revenue." "Most people look at their budgets backwards when they should be looking at it on a daily basis." — Richard Fertig, owner, Brilliant Transportation. "You have to have a clear strategy about your budget plan and recognize cash is king. — Mark Kini, owner, Boston Chauffeur "One of the key components in preparing a budget is factoring in 'unknowns.'" — Ron Sorci, CEO, Professional Consulting Resources, Inc.

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