While running a fleet business, the owner has to look after different aspects to get the desired results. Budget is amongst the most critical factors. It is the initial launching pad for a company at the start of the year. Starting with a reasonable budget means a higher probability of running successful operations. It is essential to prioritize important areas like vehicles, fleet management systems, etc., during budget allocation.
Out of many other jobs, managers have to look after the budget allocation. They need to identify the high-priority requirements and designate more resources towards them. This blog will look into some of the most critical aspects to consider during budget planning.
Steps to Follow:
Some of the integral steps to follow while strategizing about fleet budget are as follows:
1. Devise a Yearly Strategy:
As a manager, you have to analyze the business operations in detail. Identify all the strong and weak areas and the reasons behind them. Seeking help from the statistics is the best way to get valuable insights. By keeping all the data insights in mind, you should develop a strategy for the coming year. It is essential to set the priorities in your budget strategy to give a clear direction about your expenses.
2. Analyze Last Years’ Expenses:
What are the pros and cons of the last year’s budget strategy? These are critical questions to answer while devising a new plan for the future. The previous year's analysis will help you estimate the best areas for investment in the future. For example, vehicles, staff, and fleet management systems are usually considered the most crucial aspects of budget allocation. With careful consideration of the previous strategies, you can identify a method to get the optimum ROI.
3. Allocate Budget For The Year:
While allocating budget, you can mainly use two techniques; incremental budgeting and zero-based budgeting. The incremental budgeting involves adding a certain percentage of the amount to the previous year’s budget. It is a faster technique; however, it can result in more spending. Zero-based budgeting is more time-consuming as it justifies every item from zero.
4. Monitor The Budget Spending Regularly:
The job is not done after allocating the budget; in fact, the real work starts after that. As a manager, you have to ensure that the expenses are directed according to the plan. You can make a comparison with the past year’s spending trend to get valuable insights. Moreover, you have to check whether the budget spending is producing the desired outputs. If the budget plan is not working out, you have to improvise and devise a new strategy accordingly.
Most Essential Aspects to Consider:
Although there are numerous factors related to fleet budget, some of the essential ones are as follows:
• Fuel Expenses:
The fuel expense makes up a good chunk of the overall budget. Every manager’s goal is to control it by deploying different methods. The most common option to check fuel consumption is through advanced fleet management systems. You can monitor the daily, weekly, and monthly consumption and compare the trends to get helpful insights.
• Vehicle Depreciation:
Depreciation involves the calculation of the period taken to write off vehicle acquisition costs. With the difference in the circumstances, the timespan also varies. For the businesses owning their vehicles, the average period is 36 months. A shorter period means fewer taxes and more profitability. However, for the leased vehicles, companies prefer a longer period.
The taxes are an integral part of budget planning. There are many variables associated with it, and a smart strategy can help evade unnecessary taxes. It is best to seek the professional help of financial experts for tax planning.
The maintenance is a high-priority area for the managers. It is directly linked with the operational efficiency. Therefore, it is essential to direct the required resources for service and repair. With the help of an advanced fleet management system, you can get a heads-up about the maintenance needs. It gives you a time cushion to carry out the high-priority tasks.
• Disposal Adjustment:
The disposal adjustment is a process to estimate the current resale value of the vehicles. It is calculated by considering the last year’s depreciation and the capitalized value. With the help of financial management systems, you can compare all the depreciation values conveniently. Intelligent managers focus a lot on finding the optimum time for their vehicle resale to get maximum profit.
Usually, startups and smaller companies prefer leasing vehicles rather than buying them because of the many financial benefits. They do not have to pay large upfront money. Moreover, expenses on registration, taxes, and maintenance can also be avoided. During budget allocation, you must go through your leasing plan and analyze the areas with room for improvement.
• Fleet Management:
The management mechanism can make or break a business. It determines the efficiency of operations and, subsequently the profitability. So, during the planning process, go through the pros and cons of the previous year’s management insights. You should make data-driven decision based on careful analysis. Also, check the effectiveness of your fleet management system and allocate resources for the necessary improvements.
• Personal Use Chargebacks:
Most companies allow their employees to use vehicles for personal use by charging a fixed amount per month. During budget planning, you have to analyze whether this amount is profitable for you or not. As excessive usage results in an increase in maintenance expense, you should consider all such factors before setting the amount.
Insurance expense is another notable area to take into account during budget planning. You have to look into your insurance spending and compare it with data related to similar cases. It is best to share the reservations with your insurer to justify all the discrepancies in your insurance cost.
Without ensuring safety, you cannot guarantee profitable operations. Therefore it is inevitable for a business to avoid the safety budget. However, you can prioritize different aspects to manage your budget. For example, a Vehicle tracking system with a driver’s behavior monitoring and alarm system is necessary to ensure safety. You can look for cost-effective options to save you expenses, but compromising safety is not a smart choice.
While planning a fleet budget, it is essential to consider your scope. If the budget allocation exceeds your limitations, it will be counterproductive. Therefore, having a well-thought-out plan is necessary beforehand, and the guidelines mentioned above can help you do so.