Tips on how to budget as a plumber

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Budgeting is an important skill for all small business owners, especially plumbers who often have high overheads and seasonal swings in demand.

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Budgeting tips for plumbers
As a plumber, it’s important to set up and stick to a budget that helps you achieve your financial goals.

You can make a lot of money as a plumber, but running a successful plumbing business requires shrewd financial planning as well as technical expertise. Here’s what you need to know about budgeting as a plumber.

What is a budget?

A budget is essentially a forecast of the money you expect to have coming in and going out over a set period, such as a year. 

It gives you a better understanding of your business and helps you make informed financial decisions. These choices could enable you to save money while making the right investments to maintain and grow your business without becoming overstretched.

As such, a budget is indispensable for all business owners, regardless of their industry. 

How do I create a budget as a plumber?

Follow the steps below to develop a realistic budget that supports your business's goals and helps you stay on track.

  • Set your financial goals and objectives. These could include increasing your profit margin, investing in new equipment or taking on an extra employee

  • Calculate your expenses. This includes all your outgoings and covers everything from employee salaries to marketing costs and insurance premiums. When calculating expenses, it’s important to include both regular outlays and one-off costs. Next, add a percentage to cover unexpected expenses, such as emergency repairs (see below)

  • Set out the figures and then try manipulating them to see how your budget could change under different scenarios – for instance, if you took on an extra worker. It’s useful to use a program like Excel or an accounting software package that does the legwork for you for this

  • Monitor your budget regularly to check it’s still fit for purpose and adjust the numbers where necessary

How can I estimate expenses as a plumber?

When running a plumbing business, it's important to keep track of your expenses – including fixed costs, such as your rent or business loan repayments; variable expenses, such as materials and fuel; and one-off outlays, such as a new work van

A good way to arrive at a reasonable estimate of these expenses is to list all the costs you know before adding in an extra percentage for unexpected spending. You could allocate 10% or even more to cover these costs. It’s always sensible to overestimate how much you will need to spend over a set period rather than underestimate and end up short of cash. 

What are the most common financial challenges for plumbers?

All businesses face financial challenges. However, these can vary widely depending on the sector they are in.

Plumbers, for example, often have high overheads due to equipment costs and the need to purchase professional insurance

As they tend to work with lots of individual clients, they may also face cash-flow problems if clients are slow to pay.

Moreover, as demand for plumbing work tends to be higher during the colder months, plumbers must plan for seasonal swings to ensure they can meet customers’ requirements during busy periods and survive financially when business slows down. 

What does a realistic budget look like for a plumber?

A realistic budget is one you can stick to without becoming overstretched financially. 

The right type of budget for your business will depend on a range of factors including how it has been established and whether you are investing for growth.  

However, there are some budget guidelines you can use as a rule of thumb when first setting a budget as a plumber. These include the 50 30 20 budget, which can be used by businesses and individuals.

How to create a 50 30 20 budget

The 50-30-20 rule is a simple budgeting method that involves dividing your monthly after-tax income into three categories – 50% for essentials, 30% for non-essentials and 20% for savings or paying off debt.

To achieve this, you have to:

  • Spend no more than 50% of your post-tax profits on essentials, such as rent or mortgage payments, utility bills, insurance and fixed debt repayments. So, say you make £2,000 profit each month after tax. Your essentials bill would need to be £1,000 or less to fit the 50 30 20 model. If that’s not the case, you may wish to look at ways to reduce the amount you spend on these items

  • Spend no more than 30% of your profits on non-essential expenses such as updated equipment or someone to manage your admin. Using the example above, where post-tax profits are £2,000 a month, the 50-30-20 rule would give you a monthly budget of £600 for non-essentials

  • Put 20% of your post-tax profits in a business savings account to cover emergency costs or financial crises – or use this money to pay off high-interest debts such as a business overdraft. Sticking to the example given above, that would mean saving 20% of £2,000 – £400 a month. Left untouched, this would equate to a fund of almost £5,000 after one year

What are the benefits of financial planning as a plumber?

Using budgeting and financial planning to run your plumbing business provides several benefits. These include:

  • Having a clear idea of your business’s financial situation 

  • Being prepared in case of an emergency that requires you to make a large, unexpected outlay

  • Being able to identify areas where you can save money, for example, by shopping around for a better commercial mortgage deal or taking steps to reduce your energy consumption

  • Having a clear view of where you can afford to invest in your business to increase revenue and profits in the long run

Five budgeting tips for plumbers

  • If you don’t already have one, set up a business bank account to keep your income and expenditure separate from your personal finances 

  • Consider using a card reader – or an app that allows you to accept debit and credit card payments. It might cost money, but it’s great for cash flow management as it means getting paid on the day the work is completed

  • Keep your variable expenses under control by creating a budget for each job you quote for. By estimating the cost of the materials and labour, you can avoid undercharging your clients

  • Manage seasonality by setting aside more money during busy months to cover essential expenses when there is less work

  • For large purchases, consider spreading the cost using a business credit card. However, credit card debts should generally be paid off in full as quickly as possible because they tend to charge high interest rates 

Business insurance is a way to protect your company against financial risk if things go wrong.

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