Budgeting for 2015

It's that time again when most businesses start to create their budgets for the coming year. To do this, you need to estimate where you think various costs are heading. Here are some projections to help you.

Wages. How much of a raise can you expect to give your staff? Obviously this depends on how your company is doing. However, if you want to keep up with your competitors, expect to increase salaries by about 3%, the projected increase for most employee categories in just about every industry. This is about the same increase rate that was used for the prior year. If the economy heats up, pay raises could follow suit. Caution: As your payroll increases, so does your tab for employment taxes. 
 
Insurance. Not all insurance coverage is expected to rise at the same rate, so make a list the types of insurance coverage you have, and then make a projection on each one.

  • Health insurance rate changes for small businesses vary dramatically from state to state, but almost all can expect a rate increase (I've seen projections approaching 10%, but some small businesses may see double-digit rate increases). Rates for 2015 on the SHOPs should be available soon if they are not already posted.
  • Business owner policies (BOPs) could rise by about 3%, which is less than last year's rate increase.
  • Workers' compensation is generally expected to remain unchanged and could even decline in some states, such as California, Illinois, and Missouri. However, there could be increases in some states.

Talk with your insurance agent now to get a better handle on the increased premiums you can expect.

Energy costs. The type of energy you use will affect your budget changes for 2015, but the news is good on all fronts. Based on the government's short-term energy outlook, the cost of heating oil is expected to decline, but natural gas is expected to rise slightly. At the pump, the national average for gasoline prices may drop slightly, which is a plus for businesses that entail a lot of driving.
 
Postage and shipping costs. You can budget for a rate increase by the U.S. Postal Service, although the amount of the increase is unknown at this time. An official announcement by the USPS is expected in mid-October, with new rates taking effect in late January of 2015. FedEx rates have already been announced to increase by 4.9% starting January 5, 2015; DHL and UPS likely will have similar increases.

The cost of shipping goods by truck will rise an estimated 6% to 7% despite a drop in gasoline prices. The reason: higher payroll costs. The cost of shipping by rail is also predicted to rise, perhaps by 5%. Costs for shipping by sea may not increase at all.
 
Interest costs. If your business has a loan tied to the prime lending rate, you can expect your interest rate for the coming year to be essentially unchanged. The Federal Reserve announced on September 17 that it was keeping rates low for 2015, although a slight rate increase is expected perhaps as early as Spring 2015.
 
Travel and entertainment costs. Expect slight increases in travel costs: airfares for domestic flights on business class (up about 2%), restaurant meals (up about 2.5%), car rentals (up about 2% to 4%), and hotel room rates (up about 3% to 5%, depending on the locality).
 
Technology. Costs may be flat or even lower. For example, the cost of PCs, tablets, and smartphones continues to decline as does the cost for connectivity and mobile data usage. However, many companies expect to spend more in this area, especially in cloud computing and wireless services. And if you plan to upgrade your company's items because of newer models (e.g., the new iPhones), budget for this outlay.
 
Other costs. Advertising, legal fees, warehousing, and office space are some of the other items to consider when budgeting. Some of these costs are sensitive to factors specific to the area you're in (e.g., office space may be tight or readily available, which impacts rents).
 
Conclusion

Run your numbers past your financial advisor. Keep your budget fluid to account for unexpected changes in costs in the coming year.

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