Building the Holiday Budget step-by-step, [the Added Income].
A hard look at the added income.
Most entrepreneurs have a slightly elevated heartbeat when they discuss plans that might result in revenue growth. So, what does any of this have to do with the Holiday Budget? The odds are most retail sales businesses are already planning for the holiday rush. If you are in retail sales and you don’t have a plan for the increase in product orders then we need to start today. Let us not forget our friends in the professional services business. Changes in revenue are guaranteed to occur during the holidays and we need to ensure that we are on the growth side of those expectations. Before we discuss 4 important points about holiday revenue I want to make sure that we are on the same page about what the added income means.
What do we mean by added income?
Unless you are starting a brand new business in October then we are not talking about a completely new income stream. We are specifically focusing on increases in pre-existing income streams that will experience seasonal changes. The Christmas spirit brings about the giving spirit which means buying. People want to throw parties, they want to give the best gifts to each other, and they need the products and services to help them do such things. Additionally, the end of the year makes people take hard looks at their progress over the past 12 months. They will push forward with plans and projects that they promised themselves they would accomplish before January. These are great opportunities to maximize on, but these are products and services that we already know how to sell.
Why is the added income important?
Revenue increases come with added costs. The biggest question in the mind of a small business owner should be, “can I afford to make this money?” This is not a discussion on supply and demand curves, multi-linear regression models, or the such. This is a simple discussion on 4 issues that the owner should consider when creating a budget that will include increases in sales.
4 Critical thoughts about Added Income.
1. Who should expect changes in Holiday Income.
If you have the perfect gift for women from the husband this year, then you already know to be expecting increases in product orders. Maybe you have the hottest toy on the market and you are ramping up advertisement and marketing. Those with marketable products should be prepared for the holiday rush. I want to expand the players a little larger than your eyes might see. Every business owner offering products and services should take time in considering their place in the seasonal rush.
- Professional services: owners that are offering consulting and other professional services cannot allow themselves to be left out of the growth season. We find that firms who do not think they are very marketable in the holiday season see a reduction in revenue. Every business and individual wants to end the year with a bang. They want to succeed and you offer a service that will help them get to their goal before January. Spend time considering what place your service has in the holiday rush.
- Less exciting products: let us consider a product like toothpaste, and let us imagine that toothpaste is your primary product. This does not sound like a hot topic item during the holiday season. So, we need to make it a hot topic item. Everyday products, like toothpaste, have a place in the holiday season and it is your job to figure it out. This will create more of a need for marketing and advertising expertise so we might need to focus our time there and quickly.
- Popular Products: the issue with hot topic items is not whether you can increase orders or not, it is whether or not you are prepared to accept and fulfill the orders when they come. Trust me, they will come to those that are prepared. We need to consider inventory, order processing, fulfillment, and all costs associated. We have detailed several costs in our prior blog, What are the added expenses of the holiday budget?
2. Calculating the changes in income.
We can calculate the changes in income and expense categories in several ways. I would like for you to see a few quicker, and more concise, ways of calculating such changes for your holiday budget
Click on the image to download this Holiday Income Calculator.
When using the historical sales method we simply want to find growth patterns in the revenue. Typically, we compare periods of the current year to the periods of prior years. Whether you use third-quarter sales, annual sales, or periodic averages just remember to keep your comparative periods the same across the formula.
3. Adding income changes to the budget.
We have our expected revenue growth and we need to add it to our regular budget’s expected income. Realize that the formulas either consider total revenues, and thus have revenue growth calculated in, or only the expected growth which needs to be added to average monthly budgeted income. This number also needs to be the gross sales number because we will be subtracting out the cost of the goods sold, selling expenses, overhead and administrative costs in the expense section of the budget.
4. Implications of added income, [the cost].
We can’t forget the cost of what it takes to bring in additional income. Each unit of inventory has a cost to the business or cost of goods sold. The value left after subtracting the cost of goods sold from the customer’s purchase price is the gross profit. We can divide this gross profit value by the total sales value for the gross profit margin. Additionally, we need to consider the increased overhead from staff, processing, and shipping. Explore other costs, and where they should figure into the budget, on our previous blog here: What are the added expenses of the Holiday Budget?
Keeping it all in perspective.
We’ve discussed the increases in sales and service income that are upcoming for the Holiday Budget. Our first response is to get excited about the profits that are coming our way. Please remember that this is simply a plug that needs to go into our budget. We have to subtract out the expenses that are coming, both usual expenses and added expenses that come with the holiday season. Therefore, we need to complete the budget from top to bottom.
What is next?
Building the business budget, that is what’s next. We need to put the puzzle pieces together so that we have an accurate projection of net income. We must remember that the business must be prepared fiscally to operate for another year that is coming up soon. Do not hesitate to post comments or questions, tips, and tricks for the community, or just say hello. And as always, sign up for next week’s blog post.