How to Create a Capital Budget

If I was the owner of a $10-15M roofing business heading into 2025 planning season, and I wanted to figure out how much we should grow next year (and what I needed to budget to invest in that growth), here are the 5 steps I would take to put a plan together: 1️⃣ Assess Current Performance and Market Conditions: Start by reviewing this year’s financial performance—revenue, profit margins, backlog, and cash flow. Then, analyze market trends, local competition, and economic indicators for 2025. This will help you gauge what growth is realistic and what demand might look like next year. 2️⃣ Set Clear Growth Targets: Decide on specific growth metrics—whether that’s a revenue target, number of new customers, geographic expansion, or increased crew capacity. These targets should be aggressive yet achievable, based on your business's potential and market conditions. 3️⃣ Identify Key Growth Drivers: Break down what will drive your growth. Is it expanding into new territories, increasing your sales team, improving lead generation, acquiring smaller competitors, or investing in technology to enhance efficiency? Pinpointing these drivers will allow you to align your budget with activities that fuel growth. 4️⃣ Calculate Investment Needs: Budget for each key growth driver. This includes marketing, sales, operations, additional labor, and capital expenditures (e.g., equipment or software). Be realistic about the upfront costs and the time it will take to see returns. Consider setting aside a reserve for unexpected challenges. 5️⃣ Track and Measure Progress: Create a system for monitoring your performance against the set goals. Use monthly or quarterly checkpoints to assess how you’re tracking against your growth plan and adjust as needed. A combination of financial data, project performance, and customer feedback will help fine-tune the plan throughout the year. These steps ensure a clear roadmap with a strong financial foundation for growth heading into the new year. #businessplanning #roofing #growth #2025

Capital Strategy. Sounds intimidating, but it's really not. Step 1: Identify the strategy Step 2: Figure out how to pay for it Using a forecast, plug the assumptions into the model. The trick here is being conservative. I've never encountered a deal that matched the optimistic founder's assumptions. You'll probably see a projected strain on cash. Even negative cash. Solving for cash is one of the variables you're seeking. Now, consider where the money will come from: Operating cash flow Debt Equity Each has risk and cost. Operating cash considers profitability and the changes in current assets and liabilities. It is least costly, but if things go wrong you'll be in a world of hurt. Debt has interest, collateral, and covenants (rules) that could trigger negative ramifications. But it's often easier than equity if you're profitable, and you're not giving up the company. Equity is super flexible, but takes a lot of effort and cost to get. You give up future benefit which could end up being very expensive. Investors aren't always great to work with, either. A way to avoid running out of cash is to tie short-term cash to short-term needs, and long-term cash to long-term needs. Short-term needs (arise when you have to pay before you get paid): -Buy inventory -Customer terms -OPEX Short-term financing options: -Operating cash flow -Credit cards -Vendor terms -Revolving lines of credit -Factoring/PO Financing Long-term needs: -CAPEX -Refinancing needs -Business purchase -Partner buyout Long-term financing options: -Equipment leases/loans -SBA amortized loans -Conventional loans -Owner/investor contributions -Sale/Leaseback arrangements -Mezzanine financing Consider risk to the company, as well as risk appetite to the owners when figuring the best way to fund something. If any of this scares you still, reach out.

If I was the VP of a property management company and my goal was to build a air tight budget for 2026, here’s exactly what I'd do: 1. First, set up a budget leadership team. This team will have a couple of core team members. - Someone who is in charge of the data and financials. - Someone who is in charge of all of the modeling methods. - A group that is in charge of revenue and assumptions. - A peer coach to train the rest of the team. 2. Go consolidate all of the vendor contracts. Collect all vendor contract inputs and upload them in advance. By the time the rest of the team logs in, I want 80% of the model already filled. This will avoid 12 back-and-forths on why janitorial contracts are missing or why a number doesn’t tie out. 3. Do the same with revenue assumptions. At a minimum, provide clear direction on key metrics. For example: A) What market rent growth rates should be used? B) Target occupancies by property or at the market level. It works best when your regional managers and analyst teams collaborate on market analysis. 4. Align the budget team and executive team. These two groups will meet to define what a “successful” budget looks like from the start. We’d pick 4-5 KPIs and make them the approval checklist. That way, no one spends 3 weeks on a model only to hear, “Yeah… this doesn’t meet the bar.” 5. Build the ownership presentation in parallel. Start with the end in mind. Build an executive summary using Vizibly, so I’m not showing up with a 29-tab workbook and hoping they “just get it.” Gamma also works really well for making presentations. This isn’t anything revolutionary. It’s just the difference between a budget season that runs smoothly, and one where everyone ends up hating Q4. Budgeting season is here. Bookmark this. AMA in the comments.