3 best practices for new truck budgets

By John R. Hill
First Bankers

You've just been given the go-ahead to investigate the purchase of a new fire truck. Of course, the final purchase decision is always based on the costs and budget.

You don't want to make a budgeting mistake. You don't want to invest hundreds of man-hours spec'ing a truck only to learn you can't afford it. Or you don't want to scare your board into a "no" decision because the costs seem too high.

A fire truck budget can take two forms. It all depends on how you plan on paying for the truck.

The simplest way is to pay cash. You write a check for the truck, perhaps from reserves or from a grant. 

In this case, your budgeting process is simple. How large a check can you write? Your only budget limitation is the amount you can pay.

Borrowing money

If you will finance some or all of the truck, the budgeting process becomes more complex. There are more factors and each one will affect your budget.

You can take the following budget steps if financing your truck.

First, determine the amount of a down payment, if any. A down payment can lower the financing costs.

But, a down payment can drain your reserves too deeply. Then, you are leaving your department at risk of an unexpected financial event.

It is best to follow the general rule of thumb of keeping at least six months of revenues on hand for reserves.

Then, your department must develop a payment budget. You can only make payments from three possible sources.

1. You are getting a new revenue source. In other words, your department is getting a raise. You must show the new revenue is not speculative such as a new, unproven fundraiser.
2. You are reducing your expenses, usually through a recently paid off loan. But perhaps you've eliminated or reduced some other large expense.
3. You are already saving for the purchase. If your department has been saving an amount each year towards this truck purchase, these funds can be allocated toward a payment.

Best practices

I've talked with firefighters from thousands of departments over the past 20 years and have seen some effective best budgeting practices. Here's what the most effective departments have done.

First, they separated the justification decision from the budgeting decision. Justifying is much different than budgeting. Justifying compares the costs of buying versus not buying. It's answering the question "should we be buying now?" It's not answering the question "how much can we afford?" 

It's easy to get drawn into a budget discussion while justifying. Effective departments don't talk budgeting during the justification process.

Second, they talked with the decision makers often during the budget process. Don't surprise the council on meeting night with the costs. People need time to process large amounts. Make frequent contact with key people as the truck costs develop.

Finally, they added some "fudge" to the budget. It's not surprising to see truck bids come in 10 percent to 15 percent higher than the ballpark prices mentioned during the spec process.

Effective departments don't share the full budget during the spec process. They hold some back to ensure they don't get bids that exceed the budget they can actually afford.

When you use these budgeting techniques, you can avoid common problems and get the truck you need with the budget you have.