Double Your Profit Day #5 Can Zero-Based Budgeting Save Your Business Money?

Summary

Episode Summary: Double Your Profit Day #5 - Can Zero-Based Budgeting Save Your Business Money?

Podcast: Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Hosts: John Wilson & Jack Carr
Episode Title: Double Your Profit Day #5 Can Zero-Based Budgeting Save Your Business Money?
Release Date: August 5, 2025

Introduction

In the fifth installment of the "Double Your Profit" series, host John Wilson dives deep into the concept of Zero-Based Budgeting (ZBB) and its potential to enhance profitability for home service businesses. Aimed at plumbing, electrical, and HVAC contractors, this episode provides actionable insights into optimizing operational expenses to drive substantial profit growth.

Understanding Zero-Based Budgeting

Zero-Based Budgeting Defined

Zero-Based Budgeting is a method where every expense must be justified for each new budgeting period, starting from a "zero base." Instead of adjusting previous budgets, ZBB requires businesses to build their budgets from scratch, ensuring that each dollar spent aligns with the company's current goals and strategies.

Key Points:

• Focus on OPEX: ZBB concentrates solely on operational expenditures (OPEX), excluding revenue and costs above the gross profit line such as labor, materials, subcontractors, tools, and equipment.
• Expense Justification: Every expense must be justified, eliminating unnecessary costs and ensuring that each dollar is allocated to its maximum potential.

Notable Quote:
John Wilson explains, “Zero based budgeting is cost only. We ignore revenue and we ignore anything above the gross profit line... this is meant to test all of our assumptions.” (02:10)

Common Mistakes in Implementing Zero-Based Budgeting

John highlights that one of the biggest pitfalls businesses encounter when adopting ZBB is avoiding major expense line items. Often, these significant costs are deemed too critical ("sacred") to alter, leading to missed opportunities for substantial savings.

Key Points:

• Skipping Major Line Items: Companies often fear addressing large expenses like office wages, software, or marketing, thinking these costs are unchangeable.
• Potential for Savings: Focusing on high-dollar items can lead to significant savings, as these are areas where changes can have the most considerable impact on profitability.

Notable Quote:
John emphasizes, “The biggest line items is where you get the biggest juice... what is the biggest thing that I can do that will drive the biggest savings in the shortest amount of time.” (05:15)

Steps to Implement Zero-Based Budgeting

John provides a step-by-step approach to effectively apply ZBB within a business:

1. Gather Financial Data:

   • Credit Card Statements & P&L: Start by collecting all financial documents, including credit card statements and profit and loss (P&L) statements.

2. Analyze Expenses:

   • Scrutinize Each Cost: Examine every expense to determine its necessity and potential for cost reduction.
   • Question Legacy Costs: Challenge longstanding expenses by asking if they are still essential or if they can be performed more cost-effectively (e.g., using Google Sheets instead of paid software).

3. Eliminate Fluff:

   • Remove Unnecessary Expenses: Cut out non-essential costs and ensure that existing expenses are justified by their value to the business.

4. Maximize Dollar Allocation:

   • Strategic Spending: Ensure that every dollar spent aligns with the company's strategic goals, optimizing resource allocation for maximum impact.

Notable Quote:
John advises, “What we're going to do as we pick apart these giant line items is we're going to kill the fluff and we're going to make the legacy costs prove themselves to us as actually valuable.” (10:30)

Frequency and Departmental Implementation

Given that ZBB is time-consuming, John recommends regularly revisiting budgets to maintain financial discipline and adapt to changing business needs.

Key Points:

• Annual Review: Conducting ZBB once a year is beneficial but may not be sufficient for dynamic industries.
• Biannual or Quarterly Reviews: Strive to perform ZBB every six months or even every 90 days, especially when broken down by department (e.g., call center, marketing).
• Department-Specific ZBB: Tailoring the budgeting process to individual departments can enhance precision and accountability.

Notable Quote:
John states, “Zero based budgeting is time consuming, so doing it once a year could be good enough for you. But we do want to hit it more often.” (13:45)

Strategic Alignment and Long-Term Goals

Beyond mere cost-cutting, Zero-Based Budgeting serves as a strategic tool to align expenses with the company's long-term objectives.

Key Points:

• Profit-Driven Alignment: ZBB ensures that spending contributes directly to profit goals, such as scaling the business to $100 million by 2030.
• Reinvestment Focus: By eliminating sunk costs, businesses can reinvest saved dollars into growth-driving initiatives.
• Enhanced Visibility: Comprehensive budgeting provides clear insights into where every dollar is allocated, facilitating informed strategic decisions.

Notable Quote:
John emphasizes, “Zero based budgeting isn't just about cutting costs and raising profit. It's about aligning your dollars with your strategy.” (18:20)

Conclusion and Call to Action

John concludes by reinforcing the importance of Zero-Based Budgeting as a means to not only save money but also to strategically align financial resources with business goals. He encourages listeners to engage by sharing their budgeting practices and offers further resources through the podcast's website.

Key Takeaways:

• ZBB as a Profit Multiplier: When implemented correctly, ZBB can significantly increase profitability by ensuring every expense is necessary and strategically aligned.
• Continuous Improvement: Regular budgeting reviews foster a culture of financial discipline and continuous improvement.
• Strategic Reinvestment: Savings from ZBB can be redirected towards initiatives that drive long-term business growth.

Notable Quote:
John invites listener interaction, saying, “What I'd love is if you commented below with how you're budgeting and how often you're doing it. I'd love some feedback on ours.” (20:05)

Final Thoughts

This episode of "Owned and Operated" offers a comprehensive guide to implementing Zero-Based Budgeting within home service businesses. By meticulously analyzing and justifying every expense, businesses can unlock significant savings, optimize their financial strategies, and pave the way for substantial profit growth. Listeners are encouraged to adopt ZBB practices and engage with the hosts for a more interactive learning experience.

For more insights and resources, visit www.ownedandoperated.com.

Transcript

[A]

I'm John Wilson and I'm the CEO of the Wilson Companies in Ohio. We are a plumbing h vac and electrical contractor that will do about 30 million in 2025. Thanks for joining us for the double your profit series where we spend 30 days diving deep into the action steps that you can take to double the profit for your business. Thanks for tagging along. Welcome back to Double your profit. Today we're going to be diving even deeper into zero based budgeting. It is such a powerful topic that we want to make sure that we're really covering this in depth. So the way the zero based budgeting works is you start from $0. So if I'm a 30 million dollar plumbing company and my overhead is $10 million, we want to be able to start that overhead at zero. Now, zero based budgeting is cost only. We ignore revenue and we ignore anything above the gross profit line. So that's going to be labor, materials, subcontractors, tools and equipment. What we are focused on is our OPEX budget. So that's going to be marketing, administrative staff, feedback, fuel, rent, utilities. This is meant to test all of our assumptions. We're going to have to justify every single expense. We're going to not have any leftovers and we're going to really dial in on. Is every dollar going to its maximum potential? One of the common mistakes I see when people start this process is they skip the biggest line items. I think it's either because it's scary or they think it's sacred. They think that that cost is sacred. I can't touch that. But the biggest line items is where you get the biggest juice. So what you should be focusing on highest dollar amount, what will give us the highest impact? If I can solve this problem, is it going to be office wages, Is it going to be software? Is it going to be marketing? Is your marketing expense just blowing up? What is the biggest thing that I can do that will drive the biggest savings in the shortest amount of time because we're here to double our profit. As you're going through the list, what I like to do is I grab my credit card statement, I grab my P and L and I just start ripping it apart. I want to look at cost that we've had forever and sort of test the assumption, do I need that software? No. Turns out I can have somebody do it in Google sheets. Do I need any of these things? And half of the time the answer is no or yes. But it can be done for less. So what we're going to do as we pick apart these giant line items is we're going to kill the fluff and we're going to make the legacy costs prove themselves to us as actually valuable. What this helps us do is it gets us clear visibility across the board. We want to know where every single dollar is going and the bigger the business, the harder that is to do. So as you get all this data together, it helps you really understand where all of the dollars are going. It's probably going to be a pretty big spreadsheet, but as you start dialing it in, you can start racking up very real savings. Zero based budgeting is time consuming, so doing it once a year could be good enough for you. But we do want to hit it more often. We like to get as close to every six months and maybe even every 90 days if possible by department because you can break zero based budgeting into a few different sections departments. So hey, my call center, what do I really need to run a best in class call center? My marketing department, what do I really need to run a best in class marketing department and so on. So you can do that every 90 days and then roll it up to the whole or you can do the whole company depending on the size of your business as frequently as you can. You want to test your assumptions and make sure that you are maximizing your dollars. What I really want to drive home here is this isn't just about saving money. It's obviously a big part of it, but it's about saving money and being strategic with what your long term goals are. The reason that zero based budgeting helps, that is it helps you get aligned with what you are actually here to do. We're here to drive profit. We want to be at 100 million by 2030. And if we focus on a tight P and L and if we focus on reinvesting and if we put our dollars where they should be going, then we're going to get there. But if we have a million dollars a year of sunk costs into all this random stuff, it's going to take us longer because that's just lost dollars that we can't reinvest. So zero based budgeting isn't just about cutting costs and raising profit. It' about aligning your dollars with your strategy. What I'd love is if you commented below with how you're budgeting and how often you're doing it. I'd love some feedback on ours. Make sure you like subscribe and share with a friend.