Planning for Profit—Budgeting Essentials
As a music store owner, you can’t escape budgeting. At The NAMM Show, Lori Supinie of Senseney Music urged retailers to view their companies’ budgets in a new light—as a plan for profits. “It doesn’t matter if you’re not a numbers person,” said Supinie, a former CPA. “Planning is the key to being successful.”
During this session, Supinie walked the audience through the essentials of the budgeting process. She explained why you need a budget, how to prepare a budget and how you can use your budget throughout the year.
What is a budget? There are all kinds of budgets, such as purchasing and cash flow budgets, but Supinie focused on the budgeted income statement as the best tool for a store owner. She also explained that a budget can do many things for your business. “A budget establishes control of your operations,” she said. “It puts you in the driver’s seat in terms of where you’re spending your money. It can also be the basis for evaluating your store’s overall performance.”
Why prepare a budget? According to Supinie, it’s important to set reachable and justifiable targets, goals and limits, and your budget is an effective tool for doing this. She shared the opinions of her banker and industry financial consultants, who said there’s a correlation between store owners who prepare and use budgets and financial statements and stores that have more stability, fewer surprises and more success.
A word about spreadsheets. Supinie appealed to retailers to take the time to learn Excel. It’s a useful, easy tool for creating basic budget worksheets and updating them regularly. There are also software programs, such as QuickBooks and music industry software systems, that have budgeting features built into them.
How do you get started? When preparing your budget, Supinie’s best advice is to use your own judgment and experience. Using a sample spreadsheet for an imaginary store, South Wind Music, she walked retailers through the exercise of building a simple budget and offered some basic tips and references:
• Go by your store’s fiscal year (not always Jan. 1)
• Divide the year into months and quarters.
• Divide your store operations into broad product categories or departments.
• Spread your allocations across the year by quarter.
• Start with what you did last year as the simplest method.
• Estimate other revenues and sources of income, such as workshops and events.
• Estimate your expenses and allocate them accurately.
• Know your operating margins (i.e., what’s left after you pay all expenses).
• Come up with net income figures for each quarter, so you can get a better sense of your ups and downs and the big picture.
Now that you have your budget, what do you do with it? Supinie stressed using a budget once it’s finished, not putting it away. She suggested that retailers compare their budgets with their actual performance. “It maintains the focus on your goals and helps you control expenses at the same time,” she said. Sometimes, opportunities come up, and you can make decisions based on your budget. She said that she often does “what if” analyses, such as what if I added another salesperson or decreased a department’s footprint? Supinie advised that you live and learn from the budget for next time.
There’s information behind the numbers. She asked retailers to get in touch with their budgets as a yardstick for measuring success, to control expenses, to create a sense of priorities, to communicate goals to employees and as a plan for profits.
Finally, she reinforced one important takeaway: “It takes practice like anything else. Invest the time to plan and budget, and you’ll be rewarded with success.”
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