The operating budget: The crucial benchmark you may be missing
by Steve Steele, Financial Services Practice Leader
It is September, and many of us are knee-deep in planning contract renewals and, in seasonal markets, preparing for snow removal despite record-breaking summer heat. One critical item often overlooked this time of year is the operating budget. Many companies I speak with have never created one. One company told me it did not see much benefit in spending the time because the budget was never right anyway.
That misses the point. A budget is not valuable because it predicts the future perfectly. It is valuable because it makes your assumptions visible, establishes expectations and helps you recognize when reality no longer matches the plan. An operating budget is as critical as planning contract renewals. In fact, renewals should not happen before your 2027 operating budget is in place.
An operating budget is the first step toward accountability
Many companies struggle with accountability across multiple levels. Accountability begins with clearly defined expectations. There is no better place to establish those expectations than through an operating budget for sales, operations, fleet, finance and executive leadership. It turns company goals into measurable commitments for each leader before performance falls short.
Revenue, costs and expenses are budgeted and reviewed regularly. The budget shows where dollars are on track, but percentages are not, identifies wins and opportunities and assigns responsibility for important adjustments.
An operating budget provides a regular operational benchmark for performance
Yogi Berra once quipped, “You have to be very careful if you don’t know where you’re going because you may not get there.” Without specific goals, you will not know whether you are achieving them.
Good performance can mask weak profits, while good profits can mask operational weakness. The budget provides context at the company, branch and division levels: Are we on target, why or why not, and what course corrections are necessary? The review cadence should match the decisions being made. Monitor labor hours, overtime, production and revenue pacing daily or weekly. Review gross margin, overhead, branch and division performance and profit weekly or monthly. Review performance often enough to act before the month or the season is lost. This keeps the ship pointed in the right direction and allows management to make corrections while there is still time to respond.
An operating budget helps pinpoint the changes necessary to achieve it
Most budgets start with estimated revenue at the branch and division levels, which then drives the remaining cost and expense assumptions. Planning to grow 20% next year? That requires understanding how variable, semi-variable and fixed costs will change. It also raises an equally important question: How will we achieve 20% growth if we have never grown more than 5%? Budgeting is not limited to numbers in a spreadsheet. It should prompt discussion about how the revenue will be produced and what additional resources and capacity are required to support that growth. The budget itself is sometimes secondary to the discussion and planning required to develop it.
Once the budget is in place, compare it regularly against actual performance. When conditions change, update the forecast, but preserve the original budget as the benchmark for measuring performance and decisions.
Now, about those contract renewals
As I mentioned earlier, renewals should not be sent before your 2027 operating budget is complete. If you have not considered wage increases, workers’ compensation and state unemployment insurance rates, fuel and material costs, additional managers or operating systems, health insurance increases and probably 100 other things, you cannot accurately determine how much of an increase to pass on to customers.
For example, if labor represents 40% of revenue and wages are expected to rise 5%, labor alone creates roughly two points of pricing pressure before considering insurance, fuel, materials or additional overhead. That calculation protects margin instead of relying on a customary increase that may have little connection to your actual cost structure.
Sure, you can guess. Many companies are pretty good at guessing and have been profitable without an operating budget. But they likely have blind spots and are probably not operating close to peak performance.
Companies that want to thrive consistently must know where they are going, how they will get there and what performance is expected from their teams. The first step for 2027 is making the annual operating budget as important and non-negotiable as annual contract renewals.
Reprinted with permission. GIE Media. Lawn & Landscape Sept 2026 (c)
