Budget Model
Ø The model is designed with several key points
o Set a revenue goal that is realistic – one that is based on the size of your staff size;
o Current Statistical Averages for the studio – (again, without change nothing changes)
o Planned staffing increases which increase both revenue and expenses
o Studio’s fixed expenses such as rent; utilities; and contractual services
Consider this fact, multi-million dollar lottery winners who haven’t learned to manage their money end up bankrupt within a few years of getting millions of dollars. Movie stars who end up penny-less learned a valuable lesson the hard way, and that lesson is that earning the money is only the first half of the process; learning to manage it is the second half.
Achieving a million dollar studio screams success, spending 1.2 million to do it screams someone forgot to plan properly.
All throughout corporate America successful businesses create a Strategic Plan, they then weigh the consequences of their decisions while setting the direction of the next year, two years, 5 years or longer. The strategic plan is then translated into budgeted dollars, allocations and revenues. In a straight forward comparison it’s like planning your next vacation. Many people dream about one day going somewhere, and then year after year say to themselves “maybe one day….” The people that actually go on those dream vacations are the people that set a date to leave. They figure out the best way to get there, either by car train or boat, then figure out how much money it will cost and if that vacation is worth the money they are spending to enjoy that vacation. Using that logic companies spend a great deal of time energy and effort staying on track both in their direction and money spent and earned to get to the end goal.
To use the budgeting model take a few minutes to get the information you need together. Start with Statistics, earned income by teacher and the number of lessons taught. In building a budget start at the beginning and build on what we already know. Then once we have put in all the known factors we can then begin to play with the numbers we want to see, and build in the strategic plan for our own studio while watching the bottom line increase or decrease based on our decisions.
You’ll need:
- Earned income by instructor, and lessons taught
- Contract and lease information – maintenance, rent, equipment rental such as a water cooler, postage machine, computers, etc.,
- Next Year Initiatives – Remolding; expansion, additional staffing, create a wish list of items that you would like to have happen.
- While not all initiatives are possible, while working to create your budget keep in mind what you would like to accomplish and then prioritize which initiatives are possible and which will actually bring down the profit below your targeted earnings.
Building a budget starts with dissecting our business and understanding what our future goals have as an impact to the bottom line. Adding staff and setting realistic goals by each staff members past performance and setting new goals for the upcoming year as well as understanding it’s effect on your bottom line is vital to actually creating an obtainable profit line.
Using the model to understand which goals need to be set per employee, and what the day to day management decisions do to the bottom line.
Setup
The setup tab will allow you to customize expenses for your particular studio, your rent, phone, administrative staff. It will also allow you to put in your franchisee percentage.
There are several expenses which are calculated based on percentages, these are
· The Franchise Fee
· The Escrow Fee
· Advertising
· Payroll Taxes
· Credit Card Fees
All pages of the model can be printed in by excel, print each screen and get the information you need before starting the budget. I would recommend getting all information together before starting the process.
Staffing
The staffing page requires the use of your statistical information. Begin with your existing staff, put in their total earned income and lessons taught. This will give you their average lesson rate. Free lessons or reduced price lessons, groups taught and additional lessons which may have a higher or lower rate will average out. This average will be what we use to calculate their productive worth in revenue, and their anticipated salaries for the next year.
There are additional fields for misc. payments, bonuses, and competition monies earned.
The management tool here is the projected lessons taught fields. By altering the amount of lessons you are setting for each employee’s target you can see what the net effect of profit and loss is to your studio. The model allows for additions or a reduction of lessons taught if you are moving someone to a management position that allows him / her to teach less or no lessons.
The new hire section would be for your next years goals, who and when you want to hire additional staffing. The new hire section also allows you to graduate each employee’s target over a period of 4 months. In other words you can expect 10 lessons a week for the first month, 20 the second month, etc., you can set your targets in this area, and find out what the implications to the bottom line has on your expectations and month of hire for each employee.
The model will not project that of 12 months, so if you are hiring someone in November for example, they projections would only work for November and December of that year.
Health Insurance Calculator
Employee benefits are one of the issues Corporate America is wrestling with on a continual basis. As insurance costs skyrocket and average increases of 20% per year are historical as well as projected for future years. This has intensified the need for companies to control these costs, many companies set a dollar limit for each employee that they will pay for health care insurance. The 90 day waiting period prior to qualifying for health care insurance also allows for the employee to pass probation before benefits start. The 90 waiting period of course also reduces the cost of insurance for the company by a 3 month period or a 25% savings on that employee for the year they are hired. In an industry with a high turnover this amounts to a substantial savings year over year.
Consider speaking with your outside accountant as well as your payroll companies regarding setting up what is known as a 125 Cafeteria Program. This program allows you to deduct the health insurance benefit from an employee’s check prior to them paying federal taxes. Other benefits such as simple I.R.A.s and programs can be introduced as benefit programs for your employees. Setting up these plans can be quiet easy and save the employee as well as the company a great deal of money in offering additional incentives for retention of staff.
Our studio sets a dollar value at the beginning of the year for how much we will pay for employee health insurance. This benefit is non-discriminatory, and is exactly the same for all employee’s. The insurance employee deduction is then figured based on what they would owe for the difference, and deducted each payroll from their checks.
Play with this screen and find out what you will be saving on benefits offered and it’s effect on your bottom line.
Salaries
This page will allow you to calculate salaries based on projected lessons taught, earned income incentives, bonus schedules and additional information. Please remember that the competitive model created on the .info site can help you to budget the competitions allowing you to look at each competition or perhaps the anticipated competitive revenue. This budgeting model should not include the competition salaries since you will be double counting them if you use the competition model.
Also on the new hire salaries there is a place to indicate a guarantee salary for the new instructors. Again please understand this is not meant to be the bible of how to pay employee’s, but instead an opportunity to adjust the teachers pay scale and know the effects on the bottom line.
Without a lesson rate on the existing employee’s no salary calculations will take place. This will allow you to set up guarantee salaries for existing staff or managers who are teaching on the floor.
Budget Page
The fields highlighted in yellow are those fields which are not carried forward from any previous page, and either require you to enter a 0 or a dollar value which is what you have either paid in the past or intend on paying in the upcoming year.
Please remember this is not the only way in which to budget, just as each teacher in your studio would create a different routine to the same song, accountants will create a budget which is just as unique. This budgeting tool uses the principals of our business, and while it can be fine tuned as well as allocated in different months or periods, it is a good way to start looking at the management decisions and their effects on the bottom line.
I hope this helps, and would love feed back from any of the studio’s which use the model.
Thanks again,
Miche Bernier
Fred Astaire Dance Studio – Hamden, CT
203-288-5252