Budgeting isn’t just something that we do to keep our coffee-buying in check; it’s something that both individuals and businesses alike can benefit from. A monthly budget will grant you a clearer picture of where your money goes each month, identifying unnecessary expenses or problem areas that need to be addressed. With a better understanding of how you spend your money and how much you’re bringing in, you can formulate a plan to maximize your retail store’s financial efficiency. Here’s how to set up and maintain a budget for your retail business.
1.) How Much Are You Spending, And On What?
First and foremost, you need to figure out where your money is going every month. Detail every single expense your business has; right down to the toilet paper rolls for the employee bathroom. Once you’ve got a good idea of how you’re spending your money, you can take a closer look at why.
Why is your electric bill so high? Why are your marketing costs so high, but don’t seem to be returning on the investment? A clear financial picture is absolutely priceless, as it can grant you a level of insight that you may not have ever had before. Be aware of what goes on in your store, and which things cost money. If you’re spending a ridiculous amount of money on labor each month, take a look at the schedule. Why are so many employees staffed on a Monday afternoon? Once you’ve identified problem areas, you can work to fix them and plug the holes in the money hemorrhage.
2.) What’s Your Biggest Expense?
Identifying your biggest expense can help you decide how to reduce it. Your biggest expense in a retail store is likely labor, so you’ll want to take a close look at the schedules for each week and see why your labor is costing you so much. Do you have too many employees staffed on slow days? Are your employees receiving benefits? Pay raises? Overtime?
3.) How Much Are You Making Each Month?
The next step in creating your store budget is looking at your net and gross income for the month. Gross income is what you make prior to factoring out expenses, and net income is what’s left over once all of your expenses are accounted for.
If you’re losing money each month, or your net income is incredibly low, you could be dangerously close to financial distress. Identify where you make the most money; which sales, promotions, products, or services generate the most cash flow? Did a specific marketing effort create more store traffic this month than the previous month?
Ideally, you want your store to make a profit; that is, retain some of the money you’ve made after all expenses have been paid. Without a profit each month, you won’t have a cushion in place should unforeseen circumstances occur, and if you’re the owner of the store, you won’t generate much of a salary.
4.) What Expenses Can Be Trimmed Or Eliminated Altogether?
Now that you’ve compared your expenses and profits, it’s time to take a look at which of those expenses can either be trimmed or eliminated altogether. Do you really need that extra insurance policy? Can you get away with staffing only two employees on the weekdays instead of five?
Be honest with yourself during this stage. Don’t be afraid to cut hours in order to save the store money. If you’re not sure which expenses to trim, or how to handle your store’s finances, you can always hire some help. Financial advisors are great resources for helping you get your finances on track.
5.) Create A Plan:
Now it’s time to create a plan for the coming months. Be sure to create hard spending limits and stick to them. Help your employees understand the reason behind setting these limits, especially if it means allocating a specific amount of labor hours each month.
6.) Hold Yourself Accountable:
Your plan means nothing if you don’t hold yourself accountable for maintaining the standards you’ve set. Remember that you’re setting these limits for a reason, and the better you adhere to them, the better off your store will be in the long run. Trimming expenses and creating a budget will help reduce your expenses and increase your profit margin; something we think any store owner can get behind.
7.) Use The Right Tools:
Of course, creating a budget won’t matter much if you don’t stick with it, and having the right tools to help you do so can mean all the difference. Take, for instance, a POS system. Modern POS systems like Vend have many built-in tools to help you manage your business’s inventory, marketing efforts, and customer profiles. With better inventory management, you’ll save money on things like dead stock or out-of-style items. Real-time inventory counts mean you’ll always be up to date with any changes to your stock.
Take a step back and truly take the time to analyze your profits and expenses. Identify problem areas and costly items or processes, and work to trim or eliminate these expenses. You may have to trim hours to save on labor costs, so get a good idea of when your store is busiest and let your employees know you’re cutting hours ahead of time. With a good reflection on your store’s finances and a solid plan in place, you’ll be able to create an effective budget to help keep your store’s finances in check.