Hardware Retailing

FEB 2019

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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Independent Thinking T he first time I heard it, I was in junior high. My mom told me, "You have champagne taste on a beer budget." My first thought was, "Why is my mom talking to me about drinking alcohol when I am 12?" But then it quickly went to, "What in the world is a budget?" In her dumbed-down-for-a-12-year-old form, my mom explained to me that a budget is an estimate of income and expenses for a period of time. It assures people have enough money for future expenditures or things they like to buy. She suggested I do a budget for my allowance, and I quickly realized I spent way too much on Atari games and Bub's Daddy bubble gum. Since that time, I have always put together a personal budget, and in my career, we've always had a budget. In fact, I'm not sure how I could operate without one. By now, you've heard me say that some people make money in spite of themselves. If I didn't have a budget, I feel like I would fall into that category. Look, I get it; perhaps you don't have a budget. You're busy, and it is so easy to get bogged down in the day-to-day operations of the business. However, in my opinion, budgeting is one of the most critical tools for business success. Now, my dad taught me that opinions are like armpits: Everyone has a couple, and most of the time, they stink. So, perhaps you don't agree with me. If you don't have a budget, then you don't have controls in place for spending. And with no controls in place for spending, how can you plan? And if you can't plan, then how do you grow the business? How do you know you can meet long-term goals? How do you make sure you have enough money for future projects? Hint: You don't, you're winging it. So, how do you get started? Look, I'm dumb as a fence post, so it doesn't need to be complicated. If you've never done it, start with last year's numbers as a guide and adjust for inflation and other known items. If you know that economists, wholesalers and distributors are projecting industry revenues to rise 4 to 5 percent next year, then that's what you should increase last year's revenue number by to give you a starting budget. Adjust for things you know, like road construction, store remodels or increased hours. So, maybe revenue is flat for your budget, or perhaps it's up 8 percent, but be as realistic as possible. Go through this same process with cost of goods sold, fixed cost and overhead. Really take time to work on each and every line item to make sure it makes sense. And definitely involve the right people in putting together your budget. At the North American Retail Hardware Association (NRHA), while I do all people-related expenses like salaries and benefits, our department heads are required to put their revenue and expense budgets together because they know their business better than anyone. Once I receive them, if there are any issues, then we talk through them. Finally, there are so many benefits of having a realistic budget to shoot for. It restricts any spending that is not part of the budget. Trust me, and ask any of my colleagues here, I use the excuse many times when someone wants to spend money, "Sorry, it's not in the budget." You will learn to love that phrase. It also helps everyone understand the company priorities, and if you compare your actual numbers to your budgeted numbers, it will show you your strengths and weaknesses. If you want to ensure you have the money to support your key business objectives, and possibly even create a tool to incentivize your employees, then you definitely want to have a budget. Believe me, you do need a stinking budget! David Gowan, Vice President of Finance and Business Services dgowan@nrha.org " If you want to ensure you have the money to support your key business objectives, and possibly even create a tool to incentivize your employees, then you definitely want to have a budget. " Budgets? We Don't Need No Stinking Budgets! HARDWARE RETAILING | February 2019 8

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