Consider the ways to reduce your costs.
We’re looking back at the Summer of 2008- and for business and commercial operators- you know what that means! No- not updating your fantasy football team- it means budgeting for next year! Budgeting doesn't have to be a dark art. Here are a few tips to make the process easier.
First off- you can't control what you can't measure. How do you track your costs? We've worked with operators who only have a few categories of costs. They found it hard to manage their costs effectively with a few large-dollar categories. Those we've helped set up with more detailed accounts find it easier to manage and control their costs as they have the detail needed to understand their costs. Once you know where your dollars are flowing- then you can begin to plan for where those costs will be for next year. Review your cost categories and adjust- adding and changing as needed.
What will your utilization be for 2009? Is your company expanding or contracting? Fewer people doing the same work as a larger group used to perform may mean more flying in order to maximize their productivity. Remember- changes in your utilization will impact your variable costs- but your fixed costs will remain essentially unchanged.
Next- is to have a feel for what some of your cost drivers will be for next year. Fuel is a given. Fuel cost amounts to somewhere around half of your variable operating cost. Don't plan of fuel prices dropping. We'll be fortunate if they stabilize. Fuel prices vary widely from airport to airport and sometimes even from FBO to FBO. If not done already- work with your FBOs to arrange for fuel discounts. If you don't ask for a discount- you won't get one!
Shop around for prices and take advantage of fuel discount programs when they make sense for your operation. Even five cents per gallon savings will add up. If there are no changes in your utilization- figure on fuel increasing maybe 5% to 10% next year and hope to get lucky.
Maintenance is the other area where there are significant costs. You know your aircraft's maintenance requirements and planned utilization. So now you need to budget for the next year's maintenance events. If you have had the aircraft for a while- it may be a simple review of previous events. If you are having non-routine maintenance done next year- you need to research those costs.
If you are facing a major cost event- consider soliciting bids from two or more well qualified shops. Plan these events well in advance as both cost and schedule need to be considered. If your aircraft is under warranty- make sure the shops you use are equipped to handle any warranty claims- something the manufacturer's facility should do well.
Evaluate exchanges and overhauls - using loaner parts while yours are repaired may be less costly than exchanging for new. As you get your own part returned- you'll know the history of that part. New or exchange parts may help keep you on schedule. Your maintenance folks will have the knowledge in this area.
Iventory management is a another area. We had one client who had hundreds of thousands of dollars in spare parts for an aircraft they no longer owned! Even at fifty cents on the dollar in liquidation- that was a lot of extra cash lying around doing nothing.
As a rule- inventory will cost 15% to 25% of its value in carrying costs - storage- insurance- loss- etc. How much inventory do you really need for your aircraft? What are your most frequently replaced parts? How good is the manufacturer's AOG dispatch? Careful management of your inventory can save thousands. Do an inventory of your spares- and consider selling those that aren't essential and ordering early for those essential spares that you may need next year.
The use of a spreadsheet or life cycle costing tool can be valuable in making the budgeting process go smoothly. Ask for help. None of us can specialize in all areas of aviation. The folks in your finance and accounting department would love to help you make their lives easier! Lastly- start the process early. Budgeting multi-million dollar operations (or even multi-thousand) is not something done well at the last minute.
David Wyndham is an owner of Conklin & de Decker. The mission of Conklin & de Decker is to furnish the general aviation industry with objective and impartial information in the form of professionally developed and supported products and services- enabling its clients to make more informed decisions when dealing with the purchase and operation of aircraft. With over 1-800 clients in 90 countries around the world- Conklin & de Decker combines aviation experience with proven business practices. More information from www.conklindd.com; Tel: +1 508 255 5975