Setting a budget is not usually at the top of the list of most business owners’ favorite tasks. It would be fair to say the majority of people don’t find this enjoyable, especially if you don’t have an inclination toward numbers.
That said I’m sure we can all agree on the importance of having one even if we don’t quite get around to completing the exercise (and monitoring it as well as we should).
It’s a cliché but you can’t build a house without a plan, and the same is true when wanting to achieve results for your business. As Yogi Berra once said “If you don’t know where you’re going, you’ll end up someplace else”
Unfortunately most jewelers are happy to go along day by day in their business without any clear objectives in mind. Budgets are little more than goals for the store to achieve, and like goals they can go a long way to being achieved if they are written down and reviewed. A study of Harvard graduates in the mid 1950s showed that only 3 percent of the graduating class had any clearly written goals for when they completed their study. A follow up some 20 years later discovered that the same 3 percent of students had amassed a level of wealth more than the other 97 percent of graduates combined!
If goals can have such a positive effect, then their financial form —the budget, can also impact heavily on a businesses results.
“The most effective use of budgeting
is when the budget or goals of the business
are tied to the needs of the owners.”
Budgets can serve a number of purposes — to keep costs under control, to measure performance against benchmarks, to track staff and sales performance to name but a few. Budgets can be conservative or optimistic — and neither form is wrong as long as you know why you are setting them. The most effective use of budgeting however is when the budget or goals of the business are tied to the needs of the owners. Before setting a budget, it is important to know what objectives you have in mind, what level of sales you will need to get there, and also to know where you are at now. Determining your savings and lifestyle needs and working backwards to determine the levels of profit needed to meet those needs (and hence the level of expenses, margin, sales and ultimately inventory you require to reach that profit) is the most effective way to set your budgets.
Some jewelry-specific systems will provide you with a further budgeting breakdown by department so you know what sales and mark-ups you will require across each category — and still further these budgets can be broken down to monthly and daily targets so you can soon see where you are heading off course and take action to get back on track.
Business is a constantly changing ball game, and the recording and measuring of this information daily is crucial so you can take the necessary steps to be at the top of your game.