MOST BUSINESS OWNERS don’t like setting budgets. That said, I’m sure most would 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 would like).
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 used to going 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 1950s showed that only 3 percent of the graduating class had any clearly written goals. A follow up 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 business’s results. Ask the same 3 percent of Harvard graduates, and I’m sure you’ll find that budgets were an important way of measuring their financial goals and their achievement.
Budgets can serve a number of purposes: to keep costs under control, to measure performance against benchmarks, and to track staff and sales performance, to name 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 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. Still further, these budgets can be broken down into monthly and daily targets so you can soon see whether you are heading off course and take action to get back on track.
Business is a constantly changing ball game. The daily recording and measuring of this information is crucial so you can take steps to be at the top of your game.