Planning Part II: Now on to the Numbers
Detailed Expense Budget
·
Salespeople
hate budgets. I don’t know why this is the case. But after three decades in the selling
business, the evidence continues to pile up.
Whether they fear accountability, find the process tedious, or can’t
stand a couple of hours staring at a spreadsheet – it just appears as though
most shirk this duty.
·
The
Top Brass of most distributors came up through sales. And, guess what? They still hate
budgeting. As strange as it may seem, I
continually run into distributors without a detailed expense plan for the
coming year. When budgets exist, they
commonly are a product of the accounting side of the business, without solid
input and support from the other sides of the house. Ouch…
The best annual distributor
plans call for not only a forecast of incoming sales and gross margin (which
we’ve covered), but also predict operating expenses in the coming year. Over the year, a side by side comparison of
anticipated gross margin versus anticipated expenses allows the distributor to
gauge exactly how the year is progressing.
The best expense
budget covers the following areas:
·
Payroll
Expenses - This includes
salaries, commissions, bonuses, payroll taxes, insurance and other benefits.
·
Occupancy
Expenses - Things like
rent, utilities, maintenance, snow removal (for those of you who enjoy
Iowa-style winters), lawn service, janitorial service and other areas fall into
this category.
·
Sales
Expenses – Company
vehicles, cell phones, entertainment, demo units, association dues and anything
else which falls into the category of selling.
·
Marketing
Expenses – Categories
here include the calendars, trinkets and other things you give to customers,
trade shows, yellow-page advertising, fees associated with your webpage, and
any other advertising (such as sky boxes at your local Major League Baseball
stadium and memberships in hunt clubs – insert
subliminal message here invite Frank next year).
·
Other
Operating Expenses – This
category includes major expenses such as insurance (liability and casualty),
non-payroll taxes, depreciation and bad debt loss.
·
Other
Operating Income –
Rebates, backside marketing funds, special programs, SPA’s every industry has
their own terminology. But these things
plan a huge role in the profitability of wholesale distributors. Managing/maximizing the dollars is critical
in any budget plan.
Many distributors
wrongly take the approach that they cannot impact expenses, so they fail to put
adequate projections into their plan.
While some breakdowns like utility expenses seem to be globally driven
and outside the ability of a distributor to impact, we can still make some very
important assumptions.
New employees impact
the expenses but it often takes 45-90 days to find a qualified candidate. Working backwards, this allows us to
determine the best time to begin our hunt for new employees. Promised raises, whether costing of living
or other, must be factored into the next year’s plan.
·
Selling
Expenses- With many
companies in the technology sector investing heavily in demo and lab equipment,
it is possible to develop a plan for coming improvements. Further, we believe that many companies fail
to rotate demo equipment and find tens of thousands of dollars sinking down the
drain as new revision products come to the market.
·
Marketing
Expenses – Trade shows,
major programs and advertising can be anticipated and a budget created.
·
Other
Operating Income – Don’t
forget to manage the rebate dollars. Is
this a large number for your organization?
Whose job is it to manage the numbers?
Will anything change for the better?
Is there an opportunity to throw fifty, a hundred or a couple hundred
thousand extra bucks onto the pile?
Once the sales
forecast and expense budget are established, a company bottom line goal is
established. We have a prediction of our
before tax (and interest) profit for the coming year.
What to do if the numbers don’t come out?
Many folks ask; what
if the sales numbers and planned expenses do not create a reasonable profit goal? This is a not just a great question, it’s a
question that drives another question.
What would have happened if a solid plan had not been developed?
If the first two
steps of your plan show an unacceptable profit picture, we must rethink the
plan. Here are a few points to direct
your thoughts:
1. Are both plans as accurate as possible? Has the sales team gone into the “sandbagger”
mode? Does your expense budget contain a
pie-in-the-sky “wish list” of nice to have upgrades?
2. Do the stockholders of your organization want
to invest in the future? Sometimes it
does make sense to spend extra dollars to expand territories, build new
infrastructure, or capitalize on some specific market condition. These must be carefully understood and not
used as an excuse for anemic sales growth or poor expense control.
3. Do you expect mid-year changes which are not
part of either plan? If so, now is the
time to reanalyze the numbers by month or quarter.
4. Establish some management points with real
metrics. For example: if sales for the southern territory do not
improve (i.e., increase in new customers) by June 30th, we will make substantial (and measurable)
changes in the territory.
Just as the sales
forecast plan was the combined work of the entire sales team, the expense plan
is not just the responsibility of the controller or CFO. To be real everyone must input their best
estimates and support this portion of the plan.
Distributor Planning Made Easy. Check out our Distributors Annual Planning Workbook:
http://amzn.com/1481196448
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