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Budgeting: How to Maximize Your Results

This article, originally published in Baby Shop Magazine, was written to help the independent retailer get the most out of limited resources.

Budgeting: How to Maximize Your Results
by Bob Bartlett

Do you feel like you are pushing rocks uphill? Are modest sales gains being eaten up by surging healthcare, utility and freight costs? Ever wonder how some chain stores manage to consistently achieve year to year sales and earnings increases? It’s a simple management concept called continuous improvement. We get better every time we do something – like staffing the store, buying the merchandise or running advertising. For this to be reality, we need to have defined processes, capture and organize our data, and a little science (not too much).

Most people, at home or in a hands-on business environment, have a reluctance to sit down and develop a financial plan or budget. They are content to hand a box of documents to their accounting service at year end in order to complete their tax return, not realizing how valuable that information can be for continuous improvement.

Think of last year’s actual results as a plan. As Pee Wee Herman used to say, “I meant to do that!”. Now ask the question, “What do I want to happen this year?”. It makes no sense to simply think about how much money you made or lost. You need to get into the detail. You need to think about how to increase revenue line items and how to decrease expense line items. You need a budget, a management process for executing the budget, and you need to make it happen, line by line, item by item.

This is easier than it sounds, because operating without a budget roadmap and without defined business processes is very stressful and unlikely a success - like pushing rocks uphill.
Let us assume that you have the data from last year and can organize it into a number of spreadsheets, or can get your accountant to do it for you. Frankly, it is hard to see how any business can survive without this basic competency in today’s global economy.

The financial plan or budget format should reflect your business model. Your mission is to achieve a competitive level of sales per square foot of selling space. A competitive sales per square foot benchmark is one that allows you to pay the rent, make payroll and to produce a 15 to 20% store contribution to overhead. Modern retailers use basic continuous improvement science for labor scheduling, assortment planning, space management, merchandise planning, price management and so on.
Consider some examples. Last year we had December sales of $200,000 and spent $20,000 (10%) on payroll. Could we have increased sales with more payroll? Could we have made these sales with less payroll? Did we schedule the labor to match the customer traffic effectively? If not, could we come up with a staffing plan and management process matched to our daily sales plan?

Or, we have eighteen categories of merchandise, from cribs to clothing. Three categories produce 50% of the sales but occupy 70% of the selling space. Should we reset the store so that every square foot of selling space is equally productive?

Or, we have 18 weeks of supply of certain merchandise but can get replenished within three weeks. At the same time we have certain items that are always running out of stock. Can we develop a units and dollars merchandise plan for each month that will enable us to buy smarter and on a timely basis to achieve continuous improvement?

Each of these examples can be resolved if you have the data, properly organized in a plan or budget. Each of these examples can lead to a defined process (e.g. setting the store, buying, and staff scheduling), which can empower you and your staff to achieve continuous improvement. Everyone wants to do a good job. Show them how to do better by adopting your process.

So, starting with last year’s actual results we craft a plan for this year, line item by line item. We also need to define the processes by which our improvements will be achieved. The other beneficiary of continuous improvement is your customer. The customer experience in a store where it is apparent that the store knows what it is trying to do is always superior.

Here’s the great news. Next year you will have your plan alongside the actual results. You will be so much better positioned to manage for continuous improvement to control your own destiny.
Bob Bartlett is a career management consultant to the retailing industry.

By Bartlett Joseph Associates
Retail Industry Management Consultant and Expert Witness
ABOUT THE AUTHOR: Robert Bartlett, Principal, Bartlett Joseph Associates, Retail Management consultants.
Mr. Bartlett has been an industry practice leader in a major multi-national consulting firm and has over twenty five years of experience in working with senior retail industry executives throughout the United States and around the world. The focus of his current practice is business strategy, organization and management.

Copyright Bartlett Joseph Associates

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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