Columnists David Brown The importance of a solid budget

The importance of a solid budget

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Don’t let your eyes glaze over – I know this topic isn’t high on the list of priorities of many jewelers, but just because it’s not enjoyable doesn’t mean it’s not necessary. I don’t like taking the rubbish out, but I’d hate to think what my house would be like if I didn’t!

I’ve often commented that a good budget is like a speedometer on a car. Let’s say you are going out for a drive one day and you need to get to a town 200 miles away. You leave at 9 a.m. and know that you need to get there by 1 p.m. To achieve this you will need to travel at somewhere around 50 miles per hour for the entire journey. Comparing this to your business performance, your “destination” would be to say you want to achieve sales of $1 million dollars. Setting the time frame for your journey is like saying you want to achieve this goal over the coming 12 months.

Now imagine you start your journey and discover your speedometer isn’t working – and what’s more there, is no signage along the way telling you how much further it is to your destination or how far you have come. Frustrating isn’t it? You don’t know whether you are ahead, behind or on time to reach your destination by 1 p.m. You know how much time there is left, but don’t know how far you have to go. The likelihood of achieving your destination in the required time frame has now become that much harder to achieve and is largely left to guesswork.

From a business perspective, if you prepare financial information for your business monthly or quarterly this will give you some idea on how you are going relative to your financial destination – but like your car speedometer it can be hard to know whether you are on track during the periods between the reports.

Financial information is mostly historical and untimely – a bit like that road side sign you saw 10 minutes ago that told you that you still have 120 miles to go. But again, without your speedometer you won’t be able to work out how you are going until you see the next sign. An effective budget (or SalesPlan as we prefer to call it) can help provide timely, relevant information as you need it – on a daily basis. This is the equivalent of your speedometer telling you right here and now whether you are ahead or behind on your speed. A good SalesPlan allows you to measure your business DAILY so you know whether you need to put your foot on the gas or not.

There are a number of steps to getting full benefit from a budget:

1. Don’t just base it on last year. This can be a starting point, but it is inclined to restrict your performance – you’ll never set yourself what you are capable of achieving if you only base it on what you have done before. We have a valuable tool called a GAP analysis (contact This e-mail address is being protected from spambots. You need JavaScript enabled to view it if you would like to know more about how it works) that helps you plan what you need for your future, then work it back into a meaningful budget – a “Begin with the end in mind” document.

2. Break the target down into daily goals. There’s no point getting to the end of the month then discovering you’ve missed by 20% - the time to take action is early in the month when you can recognize the problem and do something about it.

3. Involve the staff. Are you comfortable with sharing the stores performance with them? Not telling them how things are tracking is like playing sport without a score.

If used correctly a budget can be a very valuable tool for any business. Use your speedometer, and don’t just wait for that next road side sign to come along.

Conference Announcement - The first ever Forum of Retail Jewelry Science will be held at Great Wolf Lodge, Dallas, TX, October 17 - 19 and will provide vendors and retailers with the opportunity to plan and set a sales budget effectively for those key fourth quarter sales. To register your interest and receive further information e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

David Brown is President of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports contact Carol Druan at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 877-569-8657.

 
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