SETTING GOALS, PLANNING & BUDGETING
Whatever you call it, taking time to determine where you want your store to be a year from now is important. It may even be critical to the survival of your store. As the store owner, you are in many instances the principal sales person, and buyer, and advertising director, and etc. etc. etc. You may think you do not have time to sit down at a desk to determine your budget. You are wrong.
"Setting goals gives direction to life. If you don't have goals, you have no direction. You're going to drift and get nowhere. Setting a goal creates a mold into which the energy of life flows," says Jack Addington, author of All About Goals and How to Achieve Them. "It's a law of the mind that which you can conceive of, believe in, and confidently expect for yourself, must necessarily become your experience."
Once you have determined where you want to be a year from now (sales level and profitability), you must set a course for how you are going to achieve that goal. That is where budgeting comes in. Budgeting is simply putting down on paper what you are going to do to achieve your goal. Budgeting is not really difficult, at least not as difficult as many people think it is. There are different methods that can be used to develop a budget. I like to use the easiest one. That is to take a look at what you did last year, then decide how you can improve it. Take a good look at last year, what you did well and what you did not-so-well. Expand on your successes and learn from your mistakes as you make plans for the new year.
Since every store is as unique as it's owner, each will have it's own method for reaching it's profit goal. For example, if we set 10% as our profit goal we can achieve it by attaining a 48% Gross Profit and keeping our expense level at 38%. We could also achieve a 10% profit with a 44% Gross Profit if we lower our expenses to 34%. The choice is yours. The important thing to remember is that a good profit level does not just "happen". You must realistically set your goal and then strive to achieve it.
To be a successful retailer, it has always been important to pay attention to all aspects of your business. In today's retail climate it is essential for your survival. For example, what good does it do to increase sales volume by the use of constant promotions when the markdowns kill Gross Profit? What good is a 48% Gross Profit if Operating Expenses are 52% of sales? Can a well thought out and followed Open-To-Buy help business if the sales effort is lacking?
How can you increase your sales?? That is a tough question that every retailer faces every day. However you decide to do it, it must be done. Your expenses continue to go up and up, especially the ones over which you have no control, such as taxes, gasoline, freight, etc. You may bring in a new line of merchandise. Or, develop a plan for rewarding your sales staff for sales that will encourage them to sell more. Your sales staff should have sales goals, the store needs a monthly sales goal. Your staff needs to be rewarded for achieving their goals.
The Gross Margin dollars are the pool of funds out of which all the company's expenses must be paid, with some left over for profit. Better buying can help you increase your Gross Margin. Add a vendor or vendors that will allow a higher markup. Buy closer to the season or even in season to take advantage of vendor's incentives. Use an Open-To-Buy to help you plan your purchases so you do not buy too much, which leads to high markdowns and low Gross Margin.
Small changes can have a big impact. Something like setting the thermostat 1-2 degrees lower in the winter and 1-2 degrees higher in the summer can help save on heating and air conditioning costs. You may want to consider going from Direct Mail to E-Mail to communicate with your customers. If you make enough small changes such as these, you will find your expenses going down and your profit going up.
Some of your expenses can be budgeted as a percentage of sales or some other amount. For example, the fee you pay for credit cards will probably be the same this year as last year so you can just multiply total planned sales by that percentage. Payroll taxes are directly related to the amount of payroll you pay. Therefore, it can be calculated as a percentage of total payroll. Freight-in is directly related to the amount of purchases so it can be calculated as a percentage of purchases.
Advertising may be the only expense over which you have total control. You should have a separate advertising/marketing budget set as a guide for how and when you will do your advertising. Different stores will have different methods that work best for them. One store may do very well with TV ads while another uses e-mail very effectively. Each store and community is unique so you must look at your own situation.
The format of your budget is very easy! It is simply the same format as your current Profit & Loss Statement! Once you have your budget set for the store at the annual level, it is time to divide it into 12 individual months. This is important since once the budget has been set you must enter it into your financial program so you will get monthly comparisons of results to the plan. If you do not do this, you will end up with a document that gets put into a drawer until the end of the year when you pull it out and say "What Happened !?!?"
A goal without a written plan is a fleeting thought. Get started on yours today. If you want help, give me a call.
"The discipline of writing something down is the first step toward making it happen." (Lido Anthony "Lee" Iacocca)