· To show more profit
· Increase the company's cash reserves
· Increase sales
· Decrease inventory levels
· Increase the customer base
· Reduce debt
These are all excellent goals, but the likelihood of achieving them is slim unless you have made definite plans on how to accomplish them.
The best place to start the planning project is with a review of how your store is doing right now. For example, are sales lower than expected? If so, is it due to the local economy or does your store need to review its merchandise selection or beef up the selling staff? Are you experiencing a growth in sales volume, but find that net profit is lower than it should be? If that is the case, expenses may be out of control or gross profit is too low (and merchandising needs to be improved).
No matter what areas you want to improve, there are four basic steps to planning for the year ahead:
Step one - review current results and business conditions
The first step to reviewing current business conditions is to examine a number of key performance indicators that will provide an accurate measure of how your business is performing.
Break down the year's sales figures month by month and compare each month's figures to the same month in the preceding year. This analysis should be conducted on the business's gross profit as well as its net profit for each month.
Once this breakdown has been done, review your key expense items such as wages, advertising, and finance. It is also important to look at stockholdings and purchases, forward orders, and markdowns. Compare these figures to your budgets and to what was spent the year before.
Most of this financial information will be sourced from your point of sale and accounting system. If you don't have these facilities, you will need to look at manual systems for gathering the data. Either way, is important to collate this information. The data should be for a reasonable period - probably 12 months or for the summer or winter season.
When going through these figures, consider the business's operating cash flow and profits. Has it been improving or has it been experiencing difficulty?
In addition to reviewing these KPIs, it is essential to review other important elements of the business such as business trends, the economic environment, the effectiveness of your business's promotions and personnel requirements. Examining some of these factors may provide explanations to some of the patterns occurring within your business.
Step two - identify key areas in need of improvement
Once this data is put together, the information needs to be formally reviewed so that key areas in need of improvement can be identified. Are there any areas of your business that are underperforming? If so, why?
When asking these questions, pay particular attention to the business's profitability, any financial trends, cash flow, industry conditions and trends.
Once these weaknesses have been identified action plans can be created, resources allocated and timelines drawn up.
Step three - develop detailed plans and budgets (broken down by month)
Once results have been analysed and key areas in need of improvement have been identified, the next step is to develop a detailed plan and budget for the year. The plan should contain the following:
- Annual Gross Margin plan by merchandise classification
- Monthly open-to-buy plan by merchandise classification
- Detailed payroll budget by category (management, sales, office, etc.) for every month
- Monthly targets for all sales staff including the owner/manager
- Expense budget for each month
- Monthly cash flow forecast.
Step four - monitoring your business's performance against the budgets
Once these budgets have been implemented, compare your business's actual results to the budgets at the end of every month to see how you are doing so corrective measures can be taken as soon as possible.
If it is impractical to conduct these analyses on a monthly basis, then they should at least be conducted quarterly in line with retailer BAS lodgements. If results are accessible through your point of sale and accounting software, then monitoring each of these elements should be relatively straightforward on a monthly basis.
In addition to monitoring these results, it is also worth fleshing out the operational elements of the business in terms of:
- How effectively the business is managing its stockholdings and is achieving a satisfactory sell through or stock turn. Is the store managing its buying with a proper buying plan and system?
- Last year's advertising and promotional activities. What worked and what didn't work. Are there some fresh ideas that could be introduced?
- Reviewing staff. How did they perform last year? What are the business's future requirements? What could be done to develop staff?
- Improve your own knowledge and skills base.
Implementing all four steps will require a commitment of your time, but you will be rewarded with a blueprint for operating your company more profitably next year. If you have not done this kind of planning before and would like some assistance there is help available.
