I’m back on a budget kick.
After helping a client complete their first ever A-to-Z, soup to nuts, line item by line item, month by month sales plan and budget, it’s finally been input into the accounting software and we were able to see our results for September.
Without goosing the business, they nearly made the sales plan, and with prudent fiscal management, they decreased expenses significantly which resulted in a nice, tidy profit for the month.
They were amazed! I was nonplussed as I knew that their increased profits would come with fiscal management (okay, we’ll call it what it is – fiscal restraint – they like to spend money on non-business driving initiatives).
THE REAL WORLD TAKEAWAY
“You can’t save your way to prosperity” or say the old saying goes. But you can make sure your spending is prudent, fiscally responsible and actually needed. How do you do that?
Create a sales plan and budget. If you don’t have one, then how are you striving to reach sales goals and measuring your expenses? This is a fundamental need for any business.
Plan every single account for every single month. One client I had only looked at what they were spending on a macro level – instead of having to pour through 100 accounts in administrative expenses, they only looked at the 15 accounts those 100 accounts rolled up into. Which meant they weren’t in tune with their business and couldn’t see the opportunities to save on expenses. Creating a great budget means allocating dollars to every single account and then spreading those dollars across 12 months.
Question everything. Start looking at those line items and determine if there’s a way to save money. A lot of areas are ripe for savings. Look at shipping/postage (people too often Fedex or UPS when regular mail will do). Look at your controllable utilities like telephone (can you switch to internet phone service)? I liken all of these to car insurance. There are always deals with car insurance as the market is so competitive. So call every year and shop your car insurance around — you’ll probably find a better deal. Your budget should be the same way. Shop your property/casualty and workman’s comp insurance around. Is there another alarm company you should check out? All of these line items (and there are plenty more) are ripe for savings.
Sweat the small stuff without forgetting about the big stuff. All the items listed above are small things but nonetheless important. Shaving budgets can result in huge aggregate savings. But don’t forget about the bigger accounts that represent the biggest chunks of your budget – rent, labor, etc. Labor in most retailers is the number one expense. You can refer to earlier posts here and here to learn how to maximize your payroll dollars.
Creating a detailed budget is a lot of work. A lot. And going through the process of shaving expenses is tedious. And it’s all for naught if you don’t look at your profit and loss statement every month to see where every single account is coming out vs. budget. For accounts that are over budget, dig into the general ledger for that account and find out why. Ditto for accounts that are under budget.