Budgeting in an uncertain time – Part 2: Planning ahead for your next budget

You’ve completed all the essential preparation work for your next budget, and now it’s time to put pen to paper (or fingers to keyboard – whatever your preference) with some facts and figures.

So, grab your notes and let’s get started...

Sales

Firstly, ensure you have your sales figures from last year written down – this is your starting point to build your budget out from.

Now decide...

• Do you want to grow the sales figure? If your answer is yes, add the percentage you want to achieve.

• What’s going on in your customer’s life? Always keep your customer front and centre in your mind. 

• How satisfied are your customers? What can you do differently to improve in this area? What would raising your game do for your sales, and especially where repeat orders are concerned? Even if your customer satisfaction is great, it’s worth looking closely to see what you can tweak to make it even better – complacency is never a good thing and especially not in a franchise business! 

• How well have your competitors done in the last year? Is there anything you can learn from them – what do they do well and, conversely, what can you see is lacking?

• What value do you add to your customers? Most marketplaces are overcrowded, so customer retention is key! Are you clear on the additional value you bring and the impact this has on your customers?  

• Can your customers easily refer you? Do you have a loyalty or affiliate scheme to incentivise customers? There’s nothing more beneficial than happy customers raving about your products and/or services and encouraging others to buy from you.

Cost of sales 

Now let’s get into the nitty gritty and look at your income and expenditure.

You need to know...

• What your gross margin was? Are you happy with this figure or do you want to change it?

• If you want to change it, how are you going to do it?

• Is anything changing with your direct costs? Are franchisee costs increasing? Are your materials overheads going up? Write all the figures down so you can see what you’re dealing with.

• If sales growth isn’t possible, are there ways you can improve your profit margins by reducing costs of sales? If this is possible, how are you going to do it? 

Overheads and other costs

It’s easy to let ‘miscellaneous other’ costs build up and drain funds that could be put to much better use elsewhere in your franchise business. 

If you haven’t already, set up cost centres and categories for your budget. Then set about reviewing where all your money goes – make sure you look at the percentages as well as the numbers. 

Reality check – you need to be brutal!! Look at where your money is going and whether the outlay brings any value to your franchise. If there’s little to no value, it must go!

Consider things like...

• Stationery – if you’ve bought in bulk, likely you won’t need to order things again until the following year. Do a regular stationery stock check so you only order exactly what you need. 

• Consumables – what things are used regularly and therefore needed, and what just hang about taking up space?

• What is your return on investment with things like marketing? Does your marketing work? Would doing more be more effective or not? What can you stop doing that will free up funds for you? 

• Auto-renew payments – do you have software licenses, etc. on auto-renew that you no longer use or can do without? Use it or lose it!

• Magazines and networking – do you read the magazines or go to the networking meetings? Does your networking strategy actually generate income?

• Utilities and insurances – when did you last check you’re on the best plans and tariffs? Many service providers thrive on your inertia, so switch things up. If the thought of doing it fills you with dread, use a broker to do the shopping around for you – most of the time this service is free!

• Debts – are there any you can clear or are coming to the end of a fixed term and can be reviewed?

Employee costs

This is a big one and an area in many franchise businesses where they’re haemorrhaging money! It can also be one of the hardest to tackle because other people’s lives are involved. 

The things you need to look at are…

• KPIs for each employee – is anyone not doing what they need to do and therefore underperforming?

• How do your KPIs stack up against your competitors?

• Does every role you pay a wage for contribute to the overall goals of your franchise? 

• Are you paying for more hours than you need or overpaying for the skills you need? 

• How much do you need to flex time and what needs to be done to create that flexibility? 

Rent and rates

There’s a whole host of things to think about when it comes to rent and rates. It’s a part of your franchise business with a lot of overheads, but it can also generate additional income too.

Things you need to consider are…

• What’s your rent for next year? Is it the same as this year or is there going to be an increase? 

• When was the last time your rent was reviewed? Make sure you’re aware when this is due, so you don’t get a surprise that you haven’t budgeted for!

• Do you pay a service charge? It pays to check if the landlord is holding on to any excess – this should be paid back to you unless it’s been earmarked for something specific for your building.

• Ask to see the budget for your building services, to make sure your landlord is spending your money responsibly.

• Do you use all the space you pay for? If you don’t, are you within your rights to sublet any parts of the building so you can generate income from unused space?

• How can you reduce the running costs of the building? 

• Can you make better use of the space you have available to grow your franchise? For instance, beauty salons can also sell products and run open evenings to bring in additional revenue and interest in their business.

• How much are your business rates? Is an increase on the horizon? Do you qualify for small business rate relief?

Contingency 

Your final set of figures is for contingency. Do not make the fatal error of overlooking this – these are uncertain times and every franchise business need buffers to help them stay afloat if times get hard! 

In your contingency pot consider things like… 

• Foreign exchange fluctuations – if you trade with businesses outside of the UK, you need to keep currency fluctuations in mind and ensure you budget for the worst-case scenarios.

• Reserves – if times get a little lean, what reserves do want for falling back on?

• Float money – it’s handy to have ready cash so any seasonal variations can be managed, rather than taking you by surprise.

So that’s it! There’s a lot for you to think about here but nailing your numbers in each of these areas will help you create a solid ‘forward budget’ for the year ahead. 

If you’re unsure about anything discussed and would like some support, get in touch and book a free initial session with one of the Franchise Accounting Specialists team..