Thursday, October 14, 2010

Wearing a parka in 80 degree weather.

Imagine, if you will, that you have to lay out your wardrobe a full month in advance. Imagine that you pick long johns and a parka for the 1st of the month, but the day arrives and it's 80 degrees outside, but you HAVE to wear it! Or, imagine that you pick shorts, t-shirt and sandals and the day arrives and it's 30 degrees and two feet of snow outside....and you HAVE to wear it!

To me, trying to ascertain sales a full month (or two or three....) in advance is a lot like trying to predict the weather.

Oh, like the weather, you can get general seasonal differences correct, but you are lucky to get any one particular week, day, or hour right.

I know what you're thinking. "What....budgeting again?" I see your eyes glazing over. "Dear god, mister! You do go on about budgeting!"

But sometimes I feel like budgeting is the whole ball game. The difference between success and failure, between making a little money, a lot of money, or no money at all.

It's not the only thing, of course. There are many more elements to a successful business, and indeed, budgeting only really matters if you've already got the rest of it right: The right product, the right location, the right hours and employees and set up and so on....

But budgeting is what I struggle with, day in and day out.

I'm probably kidding myself that I can ever arrive at the ideal budget. It probably changes from month to month; and yet, that's the point. It can't change month to month, or it doesn't work.

It's a bit of a Catch-22.

Sticking to a budget when circumstances are changing can be foolish.

But changing the budget to constantly changing circumstances can be foolish, too.

So far, in this latest downturn, (the last six months or so), I've been oddly lucky in that the 'bad' circumstances have proceeded the 'good' circumstances.

In other words, when I'm trying to arrive at a budget, bad sales have made me prudent, which have then been followed by good sales, which has made back the money.

If it had been the other way around, I would have arrived at a higher budget, followed by bad sales, resulting poor profits.

But the whole point of budgeting, in some ways, is to avoid this yo-yo effect.

If I have the correct ( in-the-middle budget) in both good months and bad months, it should even out.

It's hard -- if you've had a good streak -- to go with a budget that is lower than you think you need.

It's just as hard -- if you've had a bad streak -- to go with a budget that is higher.

That's why it's important to arrive at a budget that has some continuity, and sustainability.
And which averages out over good months and bad months.

Because I'm not always going to be lucky (?) enough to have the bad weeks proceeded the ordering of new product.

I know this is kind of vague -- it has to be, because it's a combination of being both flexible and solid; steady and variable, predictable and surprising.

In the end, I suppose it's more of an art, than a science.


RDC said...

I thought you were rather proud of being a long tail type store.

Considering the value of your inventory vs your sales in a month, it as not as big of a matter as you painted it. More of you laid out your clothes 3 month ahead and you cannot change the color scheme bu you can go long sleve to short sleve or add a jacket.

On the other hand if you had a store that turned its complete inventory each month (as in a big box store such as Wal-Mart) then they really have that issue.

Duncan McGeary said...

I suppose that's true.

But it sure feels like of the 'available monies' an awful lot of it can be scooped up on wrong guesses.

It's not so much that it puts the store in jeopardy, as it means I can't seem to make much profit beyond what I need to take home.
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