Budgets may sound like the most boring DSO task on the planet, but having a budget in place for your business is absolutely critical for one main reason – budgets put you in control.
But how, and where can you even get started with setting up your studio budget? That’s exactly what you’ll discover in this article!
The real advantage of setting a budget is that it helps you make strategic business decisions. Not sure what’s going to happen over the next six months? Try a variety of different forecasting scenarios and see what numbers emerge.
Having a budget also means you’re able to seek financing. So if you find you need a loan for a studio upgrade or expansion, you have everything you need to go and apply for one right away.
But most of all, a budget gives you more certainty and confidence. You get a clearer picture of the state of your studio and you know where you stand. It’s like turning on a light in a dark room. You’ll be able to see the obstacles and find your way around them.
Always remember that your studio budget isn’t set in stone. As your situation changes, you can make changes to your figures and see what it means for your profit!
Your budget will tell you how much you:
- spend running the studio
- can invest to improve the studio
- can pay yourself (and any shareholders)
A budget will also give you a much better idea of your cash flow. This will help you avoid running out of money and getting into a tight spot with creditors. Your budget will also show you where you can reduce expenses.
Last year’s final numbers will serve as a great predictor for this year. Last year is also going to help you predict your studio’s revenue and expense cycle.
In other words, you’ll discover when you make the most money and when do you spend the most money.
Before you lock in your budget.
Once you have a basic studio budget, you can start playing with the numbers.
What if sales go up by 10 percent?
What if you lose your biggest client?
What if you negotiate lower rent?
You can try dozens of different variables here. Many studios use this type of exercise to find out when they can afford to hire some admin staff, or an extra teacher. You can too, by adding payroll to your costs and seeing how that affects your profit.
You can create several versions of the budget to cover many variables. Experiment as much as you like and see what the outcomes look like.
The best thing about budgeting and reforecasting is that you can start any time. You will have the most impact if you start at the beginning of the year, but by starting tomorrow you still impact the rest of this year!
Each time you reforecast you will get better and better at it, so don’t worry if the first time you were off the mark, check your thought process, and adjust the coming months. It takes practice but soon you will excel at predicting the ups and downs of your studio.
Don’t be afraid to ask for help.
Setting a budget and reforecasting isn’t complicated but it can still help to involve an expert. A bookkeeper or accountant can double-check the numbers and help you make realistic predictions about business growth, upcoming expenses, and tax exposure. They can also advise you on what to do if the actual numbers deviate from the predicted ones, and are two of the most important hires you will make in your studio.
Bookkeepers and accountants charge for their time. But when it comes to business budgeting they will often save you far more than they cost. So if in doubt, ask one for help.
When building your studio budget, consider accounting software like Quickbooks or Xero. When set up right, an accounting system will automatically record all your income and expenditure so you don’t have to manually gather the information.
Smart software can also show your income and expenditure in graphs and charts. That makes it much easier to spot trends and see how your business is performing. — Some even have a budget and reforecast tool built right in!
10 Tips on Budgeting & Forecasting
Now that you know how to go about setting a budget, there’s nothing stopping you from getting started – except, perhaps, the effort. Sifting through financial records to pull the data you need can be gruelling. Here are a few things to keep in mind as you work through your numbers:
- The Budget is the Budget. Once it is locked it is locked, everything after that is a reforecast.
- A budget should be a realistic prediction of the coming year based on last year or the last several years.
- All budgeting should be worst/worst — what is the worst case scenario for the revenue line what is the worst case scenarios on the expense lines.
- Each line on the P&L is a lever that you can push or pull to change your net profit.
- Getting to profit is typically not about making 1 big change in your P&L it is a lot of little changes that all add up.
- To accurately forecast you have to start by looking at what HAS happened.
- Each reforecast should look at the trends of the past months to predict the future months.
- Think annually but plan monthly.
- Most businesses are cyclical, and a huge part of forecasting is finding your studio’s individual cycle.
- Do the work EVERY month to have the most impact, missing even one check in can change your profit for months to come.
Members of the Dance Studio Owners Inner Circle enjoy unlimited access to our entire 6-Week Dance Studio Freedom Curriculum, which is focused on your studio finances and systems to streamline your studio. Find out more about joining the Dance Studio Owners Inner Circle, and apply to join here.