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Your 2008 Budget

Diana Vollmer |

There’s no good reason for you to do a budget. You understand your business’ history. Your labor costs and rents probably won’t change (much), and they’re the biggest cost items you have. And if nothing is going to change, it’s a waste of valuable time and effort.
Before moving on, though, you may want to think about why other successful companies work through the budget process. They don’t want to waste their time any more than you do — maybe there’s something to it after all.
Planning for the future always pays off. Those who want to be able to pay for retirement or their children’s college educations know the value of planning far in advance of the time they need the money.
Beginning the process for a business is even easier: You understand its history and cost structures, and they will provide a foundation for understanding its future. But understanding the business’ future doesn’t mean you can determine it — that’s where the strength of the budgeting process lies.Fuss over Budgets. Budgets are guaranteed to be wrong, since they try to forecast the future. But the process is more critical than an exact result.
For drycleaning operators, a budget generally includes a monthly Profit & Loss statement. A company often starts with the prior year’s sales, and builds in assumptions about growth from higher prices or increased piececounts.
Then, the budget forecasts labor costs (including wage increases), rent costs (with increases), utility costs (increases), and all of the other costs it takes to run a business. After these are subtracted, there is, hopefully, something left.
If there is no profit left, it may be time for you to revisit your assumptions. What can you change, realistically, to improve the projected results? What input might change your assumptions? Making adjustments to your strategies to get the results you want is the real benefit of the budget process.
As you develop budget projections, you may discover that there are some things you’ll need in the coming year, such as a new hot-water heater, a new press or cash for the supplies needed to remodel one of your existing stores. This part of the budget is known as the Capital Expenditures budget.
Next, you’ll consider which month is best for purchasing these items. Cash is always tight in January and February, and you’re too busy in May or October. You pick an alternate time, so you have the time and cash to invest. This is the foundation of your Cashflow budget.
For some of these projects, you may need to go to a bank. Banks are always impressed when they see a budget, because it’s a forward-looking plan showing you’ll have the cash to repay them in the future.Budget vs. Results. Now, the real work starts. A budget isn’t something you work hard on and put in a drawer — it is a living document. You must compare projected results with what actually happens monthly.
The projections will probably be wrong, but you’ll know just how wrong they are. You will be able to take corrective action quickly, get back on track with your original assumptions, or move forward even faster if things are moving ahead of expectations.
To understand why costs or sales are different than anticipated, know that every item has a price and a volume/usage component related to it. For example, sales volume is a function of pricing, discounting and the number of pieces processed. Labor costs are a function of pay rates and efficiency.
Budgeting is not easy or quick, nor is it meant to be. It provides a foundation for growing your business and achieving your plans. It is an ongoing, annual event, and should be shared with managers, staffers and the rest of the organization.
The budgeting process allows you to allocate scarce resources (time and money), evaluate performance, plan and ultimately, control activities as change occurs. It forces operators to think ahead and helps them become even more successful.

About the author

Diana Vollmer

Methods for Management (MFM) Inc.

Managing Director

Diana Vollmer is managing director of Methods for Management (MFM) Inc., a consultancy specializing in drycleaning businesses. You may contact her at dvollmer@mfmi.com, 415-577-6544.

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