Neil Tortorella is a veteran graphic designer with
over 25 years' experience in developing identities,
collateral and web solutions for both large and small
companies. Based in Northeast Ohio, Tortorella Design
has received numerous awards for design excellence.
The brouhaha of business budgeting
by Neil Tortorella
It's perhaps a bit late (or early
as the case may be) to talk about budgeting, since it's usually
an October-ish activity.
But, if you haven't done it — which odds are you haven't — now's
as good a time as any. It's still close enough to the beginning
of the year to be useful. Besides, I was stuck for a topic
this month, so this is what you're getting.
Most of us are familiar with the term, "budget," but
few of us actually create one, let alone stick to one. Simply
put, a budget is all the dough you're going to spend on this
and that over the course of a year. The trick is coming up
with the right numbers to plug into your savvy spreadsheet.
There are two typical and widely used methods — previous year
and zero-base. There are others, some pretty exotic, but these
will serve our purpose.
For the former, you simply take a look at the previous year's
numbers, make some adjustments and voila! If your practice
is consistent and predictable, this is a good way to go.
The latter is a bit more tricky, but a personal favorite. Zero-based
budgeting wipes the slate clean and starts pretty much from
scratch. It takes into consideration changes during the previous
year, current threats and opportunities, new plans and such.
For a start-up without any spending history, this is your only
option. For those with a few more years in business, it's still
a good way to go.
I was taught how to budget by my mentor while working as a
marketing manager on the client side for a major newspaper
chain. Managers in the corporate world tend to cringe at the
thought of budget time. It usually means lots of overtime and
a sea
of coffee. Gee ... sort of sounds like a rush design gig. This
can also explain why some of your clients might be a wee bit
cranky around this time of year.
Here's an example. I was Director of Production and IT for
a Northeast Ohio magazine, once upon a time. I was responsible
for combined department budgets of over five million dollars.
It was late September and I had made arrangements to
take some time off after the launch of the publication. During
the pre-launch period, it wasn't unusual to go into the office
a 6 AM on Monday and not get home until after 9 PM on Wednesday.
I needed a break.
Just before I left for the house in Florida for a week, my
publisher told me that the brass was coming in from the home
office and our budgeting schedule was moved up by two weeks.
Oh, and they wanted to see the base budgets for each department,
along with four (count 'em four!) contingency budgets. I ended
up spending my vacation by the pool at the house chained to
my PowerBook and shooting off faxes every couple of hours.
Cranky is an understatement.
Your budgeting bonanza need not be such a grind.
I'll gear this toward those just starting out, since those
with a few years under their collective belts can use the same
information.
Get a grip
To whip up a sensible budget, you're going to need to do your
homework. Pulling numbers out of a hat is a bad idea. You need
some facts. Some line items are already cast (rent comes to
mind), others are like pushing a rope. Every time you get one
part moving forward, the other ends lag behind.
Since you've already created your set of goals and action plans
for the coming year, you've got a blueprint to work from. You
did set your goals and action plans, right? Whew! I knew I
could count on you.
Start with making a list of all your core expenses. This will
become your General & Administrative (a.k.a. G&A) budget.
This includes stuff like salaries, insurances, taxes, rent,
utilities, loan payments, etc. All the items that are, more
or less, fixed or predetermined.
Next comes the "pushing the rope" items. These are
expenses that may, and likely will, vary from year-to-year
and month-to-month. They're also items you can play with a
bit. Some of these are marketing/promotional expenses, professional
services (accounting, legal), office supplies, postage/shipping,
dues and subscriptions, software and such.
With your list(s) in hand, it's time to roll up your sleeves
and sharpen your pencil. If you're not sure about certain expenses,
make some calls. For instance, let's say you're negotiating
a lease for some new digs for your stellar practice, but you're
not clear on what the utilities are going to be for your palatial
property. Call the electric company and ask what the average
rates have been over the past couple of years. Then, add a
contingency of say, 10% or 20%. Call your accountant, tell
them you're putting your annual budget together and need some
fee info. After they get up off the floor, they'll be pleased
as punch to help you out because you're the first creative
they've ever met who's interested in crunching some numbers.
Same goes for the legal eagles.
As for marketing and promotion, the drill is similar. Let's
say you have an action plan that calls for a quarterly postcard
promotion. Get some budget quotes from your favorite printers
and mailing houses. Add a contingency factor to those numbers
too. Everything takes longer and costs more than you think
it will. Better to err on the side of prudence, than hope things
will come in for less. Nine times out of ten, they won't. Look
at each action plan/marketing activity and assign a cost after
getting appropriate quotes from your suppliers.
In a dazzling stroke of associative logic, you realize that
you're going to need to make follow-up calls to your mailing
list contacts. Better add some dough to the phone/long distance
numbers. Or, you could use your mobile with free long distance
and/or sign up for a good, albeit cheap, long distance option
like Skype.
Oooo ... now you're getting creative. The thing is, when you're
up to your eyeballs in a sea of numbers, dollar
signs and empty Starbucks Venti cups, things start to associate
and tie together. In a caffeine induced haze, you suddenly
have the elusive "ah ha!" and begin to see the big
picture.
But beware the paper clip! One sticky area is office supplies.
These little boogers can sneak up on you like a snake in the
grass. Printer paper, inkjet cartridges, legal pads ... oh
my! Take a walk through your local office supply megastore
and make a list of what things cost. Then do the multiplication
based on your "best guess" needs. And yes, add a
contingency ... a fairly decent one. Some items may be billable
as project expensea, but not all.
Putting it all down for posterity
Although you can simply draft your budget on paper, I don't
recommend it. You tend to go through an awful lot of sheets
and the dang pencil points keep breaking. A better solution
is a computer spreadsheet. It takes up less desk space and
you can easily run different scenarios.
For my budgets, I create a row for each item, divided up into
categories for G&A, Marketing, etc. Then I create a column
for each month. After that, it's simply plugging in the numbers.
It's important to note that not every month will be the same.
April will likely be more expensive due to tax time (if you're
in the US). You may have a specific marketing expense every
three months or annual dues once a year.
If you do this drill, you'll be prepared for the coming year
and have a pretty good idea what you need to bill each month
to keep yourself afloat and maybe even make a profit.
I also recommend you get yourself a copy of some accounting
software like QuickBooks Pro or similar application that's
designed for business use, not personal. These little gems
will enable you to run all sorts of reports. It's a good idea
to run an expense report each month to see where you are coming
in against your budget. Then, make adjustments as needed. Perhaps
you dropped a load of moolah on that nifty new piece of software
you just had to possess. No problem. Just be sure to reduce
some spending elsewhere to balance things out.
Tom Robbins once said, "There is a certain Buddhistic
calm that comes from having ... money in the bank." How
true. Creating a sensible, accurate and, most important, workable
budget for your practice will help you focus on your projects,
client relations, building your business and putting some bucks
in the bank.
In contrast to Mr. Robbins, the following observation comes
from James Baldwin. "Money, it turned out, was exactly
like sex, you thought of nothing else if you didn't have it
and thought of other things if you did."
Without well
researched, sensible planning, we find ourselves trapped in
the feast or famine syndrome, wondering where the money's going.
That's a bad place to be when you're trying to be creative.
In the end, the old adage applies — "Plan your work
and work your plan."
