1. Budgeting for Small Retail Businesses
Why Budget?
What to consider in a budget for a new retail business

2. Learning Outcomes
By the end of this mini-lecture you should be able to:
Understand why budgeting is necessary
Understand the origins of sales in a retail business for projecting as part of a budget
Understand the importance of cashflow

3. What is Budgeting? Planning of resources
It brings control to a variety of different strands of the business
It requires appropriate and accurate information where possible
Allows businesses to think further into the future
Allows focus to be put on the companies objectives

4. What is a Budget?
It is a plan that ensures you have money for future activities
It controls the flow of finance
It is a document which allows companies to make confident financial decisions
It is NOT a forecast, although forecasts are commonly used as part of it – in itself a budget is more of a planned outcome than a forecast

5. Why Budget? It helps secure funding in business proposals
It helps focus the business on objectives
Identifies potential financial problems before they occur
Improves decision making
Helps monitor performance and more importantly viability of business options (or in the case of business plans, the viability of the business itself)

6. Where does your income come from?
Retail Income
Average Spend
Value of the items
# of
items
# of customers
conversions

7. Understanding income patterns
Need to know when they’ll spend it
Seasonal fluctuations
Occasions
Important to have promotional calendar
Need to understand market issues
New competitors on market
How will they respond to your business
Impact of surrounding retailers

8. Other income
If you are applying for a loan, you may want to consider the amount more carefully
Don’t leave loan money lying around in an account unless you are certain that that account attracts more interest than you’re paying for the loan to the bank
Budget first THEN see what money you’ll need as a loan to start you up – if you need injections of the loan throughout the year, ask yourself if this business really makes enough to keep it afloat

9. Materials and Stock Consider your margins
Sales – Costs = Profits
Margin = Selling Price – Cost Price x 100
Selling Price
Only buy enough to cover sales and some for spare (or enough to keep the shelves full if bricks and mortar business)

10. Thinking about costs
COGS (Cost of Goods sold) represents the major cost to retailers and can be anything from 30-40% for clothing stores up to 70-80% for some food lines (McGoldrick 2002: )
Average industry wage cost was 16.2% of sales in 2008 (Retail Excellence Ireland 2008:3).
Marketing costs are generally 1-2.5% of sales
Stock loss costs are generally around 1% of sales
Energy costs represent over 1% of sales
Maintenance costs approximate at between 0.65% up to 1.8% of sales

11. Other Costs
Each business has it’s own unique set of costs and some may depend on legal requirements around the health and safety of workers or customers
Some costs will be estimated – others predicted (such as focussed advertising campaigns etc.)
Be sure to get an estimate of business banking charges and interest rates if taking out a loan

12. Costs Brainstorm a list of costs
Consider which of these relate specifically to your business in terms of start-up and running

13. Cash-flow balances
Your bank balance will be an indicator of your ability to pay your bills
This is known as cashflow
Failure to keep enough cashflow to pay bills is the cause of bankruptcy
Use your loans to cover cashflow issues in the start-up phase, before sales begin to come in. Don’t use it as a prop for failing sales