How to Set Up and Maintain a Budget for Your Retail Business
One of the wisest things a business owner can do is to make sure the business operates on a well-planned budget. Creating a budget is essential to ensuring the long-term success of any business, as well as guiding a company through its day-to-day decision making process. A good budget is like a roadmap that charts the course for a business as it grows. Of course, every business is different, so there is no single best method for creating a budget that applies to all retail businesses. But that being said, there are some important points that retail business owners should keep in mind as they go about creating and maintaining their retail business budget.
Identify Your Revenue Sources
One of the first steps to creating a solid budget is identifying how much revenue your business generates every month. Depending on your business model, there may be multiple different revenue streams. You may be selling products at a brick-and-mortar storefront, online, or both. Maybe you have some customers who are on a monthly subscription service. Or maybe you have income from other sources like:
The starting point for a budget often comes from understanding how much money a business makes each month. Once you know how much income your business is making, you’ll be able to craft a budget that can help you reach your company’s goals.
Calculate Regular Overhead Costs
Once you’ve identified how much revenue your business is pulling in, the next logical step is to figure out the fixed costs of running the business. These costs include things like building rent, utility bills, payroll expenses, and other costs that are recurring each month. Similar to understanding your regular monthly income, it’s vital to know how much money is flowing out of the business each month. Like your income, your costs may fluctuate over time, but making a list of which costs you expect to pay each month will give you a better idea of where your business stands and where the money is already going. For retail businesses, this is especially important, since there will almost certainly be a cost for every unit of product you make, such as:
Knowing how much is spent on each stage of your operation will help you have a fuller understanding of your company’s budgetary needs.
Analyse the Data Available to You
With the tools available today, most businesses have access to large amounts of data that can help inform budgetary decisions. With modern tracking software, savvy businesses can keep a close eye on exactly which areas generate the most revenue, and which require the most cost. Identifying the most profitable areas of your business can help you figure out where you need to focus your efforts. Regularly looking at your company’s data will also ensure that things don’t slip through the cracks.
Try to Predict Future Costs
Beyond the regular day-to-day costs of doing business and planned expenses like product cost and shipping, there may be some future expenses down the road for your business that you can plan for ahead of time. For example, if you know you plan on hiring more employees in the future, it’s important to include that in the company budget. If your business plans on upgrading to a larger office space, purchasing new equipment, or spending big on a particular ad campaign, even if these are one-time costs, they will affect your company’s bottom line, so they need to be accounted for.
Consider any Relevant Trends
Another important thing to keep in mind as you lay out your company’s budget for the future is notable trends in the industry and the business world at large. There may be some areas in which your company will want to invest some additional resources, and there may be other areas in which you’d be wise to pull back on spending. For example, digital marketing has changed dramatically in recent years, and many successful companies are using this to their advantage by spending more resources on social media and other digital marketing efforts. If you own a retail business that sells multiple products, perhaps popularity for one product is growing while another is fading. These types of trends can impact the future of your company, and you would be wise to reflect those trends in your company budget.
Identify Your Current Goals
Depending on what stage your company is in, you may have different goals for the near future, and these are important factors in crafting any business budget.
● If your business is still fairly young and looking for fast growth, you’ll want to focus on areas that generate revenue quickly.
● If your company is already going strong, and you’re looking for steadier growth or simply to maintain your current levels, then you may be more interested in long-term marketing strategies that don’t pay immediate cash returns but can improve brand recognition.
Knowing what stage your company is in and what the next steps and goals are for the business will be critical when figuring out the budget. Again, every business is different.
Startup companies whose funds come from angel investors may be in a completely different place than an established retail business with multiple locations or outlets. Take stock of where your business is and what you’re hoping to accomplish in the next year or next quarter. Make sure your budget is aligned with these goals, so you can be confident that your business plan is moving the company in the right direction.
Every business is unique. There is no set formula for creating a budget that will apply to every single retail business. Setting up and maintaining an effective retail business budget requires thinking about the business in multiple different ways. You need to accurately understand where the business is in the present, but also you need to do your best to predict where the business will be in the future. The worst thing you can do is to budget your business with no margin for error. The truth is, unexpected expenses will come up. It’s a fact of business life. So make sure to leave yourself some wiggle room for bumps that may appear along the way. If you use all the resources at your disposal and think critically, you can create a strong budget plan that will guide your business to success.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.
Luke Loftin is a writer and editor based out of Los Angeles. He specialises in finance, as well as health and wellness. In his free time, he enjoys watching Astros baseball. You can find him on LinkedIn.