Budgets and Sandboxes
New Year’s Day I sat down to work on my budgets. I did our household budget, and then I set to work on RedClick Marketing’s budget. For some reason, the dawning of the New Year inspires me to become organized. Apparently, others get inspired to be organized as well considering retailers are often offering a zillion organizational products for sale this time of year.
Back to the budget. I am amazed when I find out that many businesses run without a budget. How do they know what’s coming up? How can they plan for expenses? And, I guess, most importantly, how do they price their services or products? If you don’t understand your costs, then you don’t understand your price. If you are undercharging, you are hurting your company. If you are overcharging, you could be turning away customers.
There is also a psychological aspect to developing a budget. You can plan for any scenario on paper, and therefore you give yourself the positive vibe of success.
I’ve used two methods to developing a company budget.
The first: I print out my Profit and Loss statements for each month of the previous fiscal year, then I estimate what these costs will be during the upcoming year. I also look at the realistic expectation of revenue for each of those months. Then, the spreadsheet becomes my sandbox. I can see what my profit would be if my revenue was a lot higher for each of the months, or if I could lower an expense or two. Then, I’ll play around with adding more people, and what we could accomplish together. And, then, maybe I’ll double our client base. The fun of working with a budget is when you have it in spreadsheet software, you can play out the “what-if” scenarios. And, yes, it is fun!!!
The second: When, I’m feeling extremely left brained, I may look at my current month’s expenses, and compare them to my budget. I’ll make a list of what I need to pay this month, next month, and the following month. I’ll look at what I expect to collect in revenue, and factor in how I plan to pay for some unexpected items, that weren’t in the original budget.
If you have someone who handles your bookkeeping, you may want to make the second method a task for that person.
As far as marketing budgets, I create these completely differently. Marketing budgets are created after the plan. I’ll factor in the methods and the media costs to achieve the objectives as set forth in the plan. Then, I will list all of the existing signed contracts by month in the budget. By the way, I don’t agree with getting a yearly number and dividing by 12. I will look at the marketing mechanisms that have worked in the past, and add those into the budget. Then, I will collect media kits from any new endeavor we plan to embark on. Then, I will add any miscellaneous items that should legitimately be added into the marketing budget.
The key after a marketing plan is developed is to ensure that the expected amount of revenue is brought in each month. An amount for off-the-shelf marketing should be placed into expected slow months. If you don’t need to use it, then great, but at least you planned for it.
Again, I welcome your comments.