While budgeting is not anyone's favorite subject, it is one of the most critical management tools at your fingertips. While we aren't suggesting that anyone "cook their books," we believe that by following the same steps as the great chefs, you can spice up your reporting.

The Never-ending Cycle

The budget cycle is a three-step process that never ends. The first step is to determine your actual volumes and costs. You need to measure both your inbound and outbound mail by type. It is critical that you count by type, as it costs more to process accountable, overnight mail (inbound or outbound) than regular First Class.

The second step is to determine your projected volumes. Will there be a change in the volume of your company's business? Often more important, will there be changes in your company's type of business? This could significantly change the types and volumes of mail you process.

Next, budget your expenses. What will these volumes cost you? Don't forget to factor all rates, with any increases, by category. What equipment and software do you need to process this mail (capital purchases)? What type of labor force do you need (how many people at what skill level)?

Insure that you are very detailed in the following categories: salaries, benefits, service charges, capital purchases and direct expenses. Direct expenses include travel, rent, stationery and printing, postage, telephone equipment and usage, depreciation, software, maintenance, education, association dues, books and periodicals (don't worry about your Mailing Systems Technology subscription, that's free).

When developing a method to track expenses, accurate records are the key. If possible, use a computerized system for this function. There are a variety of vendors that have software that can be attached to your meters and inserters. Work with your accounting department and comptroller to insure the software you purchase

is compatible with your company's accounting system. If you aren't computer literate, then you should become so or hire someone who is.

A critical measurement is cost per piece or unit cost. The formula is very simple: total expenses ÷ unit of measure = unit cost. However, make sure you include all expenses from your budget. If you have a quality control person checking work, be sure to include her salary in this process.

Do Your Research

If you are going to buy equipment, whether a new stove with dual ovens or a mail machine, you must first become informed about the product and the process. Do you know what's out there or what's coming to the marketplace soon? Take the time to get to trade shows, visit other shops and read reviews in the trade periodicals. Also, get to learn your company's internal processes for buying equipment. Call your procurement or purchasing department and ask for someone to walk you through the steps. Doing this up front will gain you friends and save you trouble later.

After you have become informed, compare what you need against what you want. Is it critical that your stovetop has six burners or can you get away with four? How many insert stations will you use regularly on that new inserter? Most importantly, review what you can afford. Don't forget to include the new space for that equipment and new staff that need to be hired, along with the cost of the equipment. Also, look at the options of leasing the equipment or outsourcing the function.

After you purchase the equipment, your operating budget will get hit with a depreciation cost or the devaluation of the equipment over its expected life. The formula is always company-specific; so make sure you meet with your comptroller or accountant. ·

One Standard Formula:

Base = Purchase + Tax + Shipping + Installation

Y = Number of Years

Yearly Depreciation = Base ÷ Y

For example:

Inserter     $100,000

Tax                      $5,000

Shipping               $1,000

Installation            $4,000

Base Price            $110,000

Depreciation Term = 5 Years

Yearly Depreciation = $110,000 ÷ 5 = $22,000 (this amount is taken from your budget for five years)

The standards in the industry are constantly changing, especially with rapidly changing technology. Software and PCs are usually only valued over two to three years. Hardware will normally retain value for five to seven years. Again, meet with your comptroller to be sure.

Create A Dependable Team

Just as a master chef is dependent upon her sous-chefs, a manager is reliant upon her staff. A talented, dedicated staff is one of the most critical components of a successful operation. You must continually review staffing for performance, skill sets and flexibility. Cross-train wherever possible, within your own department and with other departments. Although not a pleasant task, you must replace poor or marginal employees if they do not respond to training and counseling. To help reduce expenses, consider part-time or temporary help for peak periods.

You also need to develop a method for charging back for all of these services and postage expenses. Smaller shops may be able to use a formula system that breaks out the cost on an agreed-upon ratio based on head count or business lines. Most managers will need to perform accurate direct chargebacks. Investigate using an automated system that attaches directly to your meters and inserters. These systems will allow you to track pieces, postage, production figures and operator statistics. Also, they will provide data for production standards to use in employee evaluations. With most systems, reports can be summarized automatically by customer or department and sent directly to accounting for billing. Just as with equipment, take the time to learn about the different products each vendor has to offer and make sure they are compatible with your equipment.

Your monthly budget report is an important ingredient in this recipe. You need to compare your actual expenses to your budget plan. The percentage differences are more important than dollars, as they can often be related back to production volumes, rate increases, etc. Also, use this time to reflect on why you weren't 100% accurate.

Now that you have finished your meat and potatoes, it's time for some desserts or a short list of opportunities for savings.