I'm writing this at the home of our daughter and son-in-law in Troy, Mich. I became a very proud granddad early one recent morning. Kaitlyn - all seven pounds and 11 ounces of her - and mom are doing great. Gramps is probably the only one still shaking from this wonderful experience.

But, back to budgets and why they are so very important in operating a showroom (or any business for that matter): A budget is a road map on how to get from point A to point B. It's your plan for the next 12 months. It's your guideline for everything you want to accomplish in the next fiscal year.

Yes, here I am in Troy. I don't know the area very well. Without a map of the local area I wouldn't be able to run to Costco, the food store, the carry-out restaurants, or even visit daughter Kris and beautiful Kaitlyn in the hospital. Without the map, I'd be all over the place, lost, asking directions, wasting time. My map is like your budget. It's your direction and guide.

Most companies are on a calendar fiscal year. That means every January 1st represents the first day of a year. But even if your company is on a different fiscal calendar, budgets are a must! Assuming January 1st is the start of a new year, November and December are the perfect time to do budgets.

Hopefully your showroom is treated as a separate profit center. This means that all sales (revenues) and expenses for the showroom are kept separate from branch and/or company sales. How else would anybody know if the showroom was profitable or if in fact it was worth operating?

So, starting with the premise that you have some historic financial data for the showroom, here's how to start building a budget:

• Gather the last two or three years' financial information (sales, cost of goods sold, gross profit, expenses and profit before taxes).

• Carve out some quiet time and find a quiet place. If this is your first budget-building exercise, you will probably need four to eight hours. If you've done it before, then it should take less than four hours.

• The computer is the way to go! Today's software allows you to do spreadsheets and calculations that used to take 10 times longer to do when done manually.

• Start by doing a mini forecasting survey. Ask showroom salespeople what they think sales for 2005 might be: up, down or about the same. Ask your vendors what they anticipate next year will bring. Get on the Internet and look up economic forecasts for your area in 2005. And yes, there is a certain amount of “crystal-ball” predicting. No one can forecast the future to the penny, but you'll be amazed how close you can come.

• Next, with all the historic information and a fairly good feel for what you believe 2005 will bring, start plugging in numbers. Break the information out in as much detail as possible. Spread the numbers by month. Here are a few examples:

January February March... 12-Month Total

Sally's Sales $50,750 $48,500 $53,000 $600,000

Bob's Sales $58,500 $62,750 $63,250 $720,000

Janet's Sales $21,000 $22,500 $24,000 $360,000

Total Sales $130,250 $133,750 $140,250 $1,680,000

In this example, both Sally and Bob have been selling for several years, but Janet is new and just starting to grow her sales.

If you sell other than decorative plumbing products you might break those sales out also. For example:

January February March... 12-Month Total

Plumbing Sales $91,175 $93,625 $98,175 $1,176,000

Hardware Sales $13,025 $13,375 $14,025 $168,000

Tile Sales $13,025 $13,375 $14,025 $168,000

Countertop Sales $13,025 $13,375 $14,025 $168,000

Total Sales $130,250 $133,750 $140,250 $1,680,000

Once you've filled in the sales numbers, the next numbers are cost of goods sold. This is the cost of the products you sold, broken out by salesperson, product category and total. (This is what you paid your vendors). Then subtracting the cost of goods sold (C of GS) from sales gives you the gross profit dollars and percentage earned on these sales. Let's use Sally's sales as an example:

January February March... 12-Month Total

Sally's Sales $50,750 $48,500 $53,000 $600,000

Sally's C of GS $33,495 $31,040 $34,450 $390,000

Sally's G.P. $ $17,255 $17,460 $18,550 $210,000

Sally's G.P. % 34% 36% 35% 35%

An average of 35% gross profit on sales for the entire year isn't great, but it's considerably better than the average wholesaler enjoys. Learning to sell for improved gross profit margin is something everyone should be working on. See several of my past articles on how this can be achieved.

Next in the budgeting process is itemizing expenses. Again, I hope the showroom expenses have been broken out from the branch or company. Even if you have to interpolate some of them, the showroom is “x” amount of the total building space so you can assign rent, utilities and insurance numbers to the showroom. Payroll, advertising, displays, and build-out are easy figures to assign to the showroom. Break expenses down as much as possible. Don't show a telephone expense that is all-inclusive; break it out by telephone calls, Yellow Pages, etc. Use historic data as your guideline.

We don't have enough room here to show an example of a detailed list of expenses, but here's a consolidated example:

EXPENSES

January February March... 12-Month Total

Salaries/Wages

Payroll Taxes

Legal/Accounting (Fill in projected numbers for each

Advertising month and yearly totals)

Office Supplies

Telephone

Utilities

Rent

Insurance

Etc.

Total Expenses

Once you have expense totals, subtract these from the gross profit dollar numbers and you will have a net profit or loss before taxes. You will know whether the investment and hard work has been worth it.

Don't you agree that treating the showroom as a profit center (stand-alone business entity) is a must? If you don't make money in the showroom, figure out how to make it more profitable - or get out of the showroom business and concentrate on wholesale only. More and more wholesalers are learning that the showroom can be a great way of generating plus revenues. It affords the opportunity of selling a diversity of products to a diversity of clients.

Having a budget will tell you ahead of time when you'll have to add more people (or decrease if the numbers dictate). It helps plan cash flow. It helps you budget for all marketing activities. A budget allows you to establish sales and gross profit goals for each salesperson. Then in turn you can tie incentives (motivators) to these goals. It allows you to practice rewards and recognition on specific goals and numbers.

Just like the map I've been using to find my way around the greater Detroit area, your budget will help you find your way around the showroom business in 2005 and beyond. <<