My 9-0-9 Plan for a Surefire 2012 Budget
Here is a surefire way to develop a budget for 2012 that will keep your ship on course. It would be a bit catchier to call it 9-9-9, but I can’t make that work in today’s economic environment. Given the uncertainty facing graphic arts firms, I suggest you develop three budget scenarios:
Scenario 1: Assume a 9 percent sales increase. This will allow room for growth—planning to add personnel, marketing programs, new production capabilities or simply put more on the bottom line.
Scenario 2: Assume a 0 percent sales increase. This scenario obviously gets tougher. You will have some increased costs simply because of inflation. To avoid erosion to the bottom line, you will need a plan to reduce expenses somewhere just to maintain profitability.
Scenario 3: Assume a 9 percent sales decrease. This gets really tough. Now you are faced with the need for substantial expense cutting just to keep the business healthy. In most cases, this would cause a reduction in payroll since that is usually the most controllable variable expense. It is also the one most of us lack the courage to cut.
Why go through the exercise of three scenarios? I have found it is very helpful because it forces you to address how to manage the situation in each scenario. You either have more resources to spend to grow the company, or you must plan how to reduce expenses to avoid a cash drain.
If you compare your company’s most recent quarter to the same quarter last year, it should give a good read on what you can expect for sales in the upcoming quarter. You can then factor in what you know about gained or lost customers to predict going forward. This approach allows you to be proactive, rather than reactive, in managing expenses and spending for growth.
I obviously picked 9s to coattail off of one of the economic plans we have heard so much about in the national political race. The important part is having a plan you can communicate to your staff and get them to understand is a good idea. You need to get them to buy into your plan and focus on the things appropriate to your company.
You should obviously pick scenarios that fit your current situation best. Yours could be +3 | -3 | -5 or +20 | +10 | +5 (I like that one) or whatever is closest to your experience. The one you pick as your target budget plan should be one you have an 80 percent chance of hitting. I also suggest you budget by quarter and not by the year. Our vision for predicting sales is rarely accurate beyond one quarter at a time.
Budget the surefire way by picking a realistic scenario and managing towards it. It’s OK to have “stretch goals,” but build your expense structure around a realistic, surefire budget and you will sleep a lot better in 2012.