Reserve Engineering Your Budget
How, Why and What Is That?
Reverse engineering is a strategy that contains your focus, plan, and consistency. Starting with your business goals for the coming year, you can determine what you want to do and why. Having a focus and plan is critical to being consistent. And these elements (with a few othrs) comprise your business strategy.
This information guides you on your journey and gives you the numbers necessary to create a budget.
Reverse Engineering a budget begins with your plan. You plan to sell widgets because they solve a problem for your ideal customer. But how many widgets should you have in inventory and what kinds?
That’s where your focus comes in. Let’ use a fictitious company – Brand X – a an example. Brand X sells giftware and souvineurs online and through gift shows. There are no employees other than the owner. She may hire specialty services through contracts, but has no payroll or facility rental expenses. She wants to gross $10,000 this year and all her product comes through established companies that wholesale through trade shows.
The average price of her retail items is $19.50 ($6.50 wholesale). She divides $10,000 by $19.50 to determine she needs to purchase approximately 513 items in a year. Her first question would be, can she sell that much? 513 times $6.50 would require $3335.00 inventory expense.
In order to acquire the inventory in a timely fashion and spread the expense out into thirds, she’ll need to spend $1,111.50 every quarter starting in March, reorder in May/June and her last purchase in Aug./Sept.
Then she’ll need to determine how many shows she will attend and tally the booth fees needed. She’ll attend two trade shows during the year. Lodging will come to approximately $600.00, $100 a day for food and travel and a couple of hundred dollars for product she finds to add to her collections.
There will be other expenses, licenses, permits, etc., during the year, but this should get her started. Choosing to reverse engineer her budget will give her a better sense of what is possible. Dreaming numbers for income and expenses is risky and is not based in reality.
Can you reverse engineer your budget? It’s not hard, but it does take time. If you need help just sign up for a Free Consultation and we can talk about your goals, focus and a plan, making the strategy of what to sell and how much you’ll need easier every year.
Until Next Time - - -