A detailed look at how the Holiday Budget differs from every other month.
Holidays bring changes.
Let us begin with a question, “Do you expect to have different income and expense amounts during the Holiday months as appose to the other 9-10 months of the year?” Of course, we all do. If for nothing else then we can all expect an increase in expenses if we are in the habit of buying gifts for Christmas. Have you budgeted for these expenses? Do you know how many gifts you need to purchase, how much to save for the holiday event catering expense, or how much in an increase in sales orders is going to cost in you in inventory and overhead? I think it suffices to say that we are all going to experience differences in our holiday budgets, and I want to help out business operators and individuals alike in their pursuit of budgeting for the changes.
What is Holiday Budget?
The Holiday Budget is no different from any other budget, except that it will include additional revenues and/or additional expense categories. It is a budget that clearly accounts for the expected additions of holiday parties and events, increased sales revenue from holiday retail promotions and specials, and an increase in owner’s take-home pay. We approach the creation of the Holiday Budget the same as any other budget with an accurate anticipation of income from sales, or services, and then subtract away the costs associated with creating that income.
Why is the Holiday Budget important?
For no greater reason than the importance of a budget for any period and any business or individual. The Holiday Budget allows the business owner to operate with fiscal responsibility and solvency. Simply put, the budget is the best way to ensure that your business remains solvent and hopeful for growth. Another way to say it is that the budget is the best way of ensuring that your business doesn’t go broke trying to pay its bills.
How to Create a Holiday Budget.
Over the next several weeks we will break down each component of a Holiday Budget, however, I would like to leave the curious high achiever with a broad understanding of how to create the Holiday Budget.
1. Creating the foundation for a Holiday Budget.
Right now your are either a routine budget creator, or you have never created a consistent budget that carries forward from month to month. If you are a consistent budgeter then you can grab the last month’s budget and move on to the next step. If you would like a quick and easy way to create a foundation for the Holiday Budget then stick with me.
- First, grab 3 months of bank statements and three colors of highlighters.
- Next, choose a color and highlight the income from your business sales or services over the last three months. Total each month’s revenue and then take an average of those three months.
- Now we will focus on expenses in the same way. Highlight the expenses with a new color for the prior three months. Sum up each month’s expenses and take an average of that expense total.
- Finally, use the final color to highlight the amount of money you are paying to yourself each month. You may even need to highlight the amount of money you are putting into the business from outside sources each month if this is still occurring. Average the monthly take-home pay in the same way as income and expenses.
This a quick and easy way to create a foundation for the Holiday Budget. I agree with more experienced business owners that this type of budget is not comprehensive and complex enough to provide other necessary data for running a company. However, in crunch time we must begin somewhere, and this is the best place to begin.
2. Consider the changes in revenue.
Beginning with the income we can now develop the changes that separate the Holiday Budget from the remaining month’s budget. The end of the year brings the highest values in revenue for most retail businesses as well as many service-based businesses. Consider the photographer who might promote their business with holiday family photo sessions, or the custom holiday sweater maker whose primary income source will occur during the last 3 months of the year. Also, consider the tax preparer who sees a drastic drop in income during the holiday months due to the lack of tax returns being filed. Each business needs to consider the changes in income and then reflect that change in the foundation budget to create the first category on the Holiday Budget, which is revenue.
3. Consider the increase in expenses.
Although some may experience a reduction in Holiday Budget expenses, most would agree that the Christmas Spirit affecting our emotions and excitement result in higher than expected expenses. We need to take a critical and reasonable look at the additional categories or additions to the expense categories. Keep in mind that employee morale comes with the expectation of some sort of holiday business events such as a lunch or dinner. Additionally, business owners thoroughly enjoy buying gifts for their beloved employees. Finally, we need to very seriously consider the increased cost associated with the advertisement and marketing of holiday promotions, the increased cost of overhead to process the increase in holiday orders and the increased cost in inventory and goods purchased and resold. Once we take into account these changes in expenses we will then add them to our expense categories on the Holiday Budget so that we can determine if we will make enough during this period to cover the costs.
4. Consider the owner’s take-home pay.
Last, but most importantly, we operate a business to provide our families and self with income for living expenses. Such personal living expenses are typically increased during the holidays, and we can see those changes in the number of gifts that we buy for our loved ones. Additionally, we must consider the costs of holiday dinners and family gatherings, travel required, and other support costs. The owner’s take-home pay budget line will now be able to reflect this possible increase, and the owner can feel more confident in their decisions about revenue and spending.
A word of advice on budgeting.
The biggest take away from this article to help the reader realize the priority of the Holiday Budget inside of the financial decision making for the business and family. Budgeting is not just the best business practice for the business that makes a certain amount of money or more, it is the best business practice for financially tight businesses who risk overspending in the early stages.
What to do next.
First, comment below with any question that you have about the Holiday Budget. Then, sign up for our blog alerts because I will be breaking down the Holiday Budget in the following 4 blogs. You won’t want to miss what is coming for the Holiday season and get ready for next year because it is time to become a pro at QBO.