The first thing that my franchisor asked me for was a budget and I hadn’t even signed the franchise agreement yet. Budgeting is one of the hardest things you will be required to do, yet once you have done your first budget, it is very easy to update this budget every year, year after year.

As always the hardest step is the first step, in my experience I have also learned to KISS it – “keep it simple sweetheart”.

1. Get the template

The first thing you should do is ask your franchisor for their profit & loss report template as you will use this as the base with which to start your budget (if they don’t have one you can download one here).

2. Forecast – Look into the future

Your next challenge is to forecast the figures to put in this template. How can you possibly look into the future to know what sales you will do? You can’t, but what you can do is use your history to make an informed guess. Really that is what budgeting is all about – using existing figures to make future plans.

Print out last years Profit & Loss report. (Note: If your business is brand new ask your franchisor for the Profit & Loss report for a similar site.) Print the Profit & Loss report with the year to date figures in one column but use a second column that is a percentage of the top line sales. These percentages are your Key Performance Indicators (KPIs); the ones that either you achieved last year, or another franchisee is achieving in the system.

Once you have identified these KPIs it’s time to do a bit of dreaming and let your imagination get carried away with you. As always, start at the top, what if you could increase your sales by just 1% or 5%? What would this figure look like? Divide it by 52 to get a weekly figure that you have to aim for, is this achievable? Name the figure and set it as a weekly KPI to reach.

Now lets try to reduce both your COGS and labour cost by at least 1% and perhaps up to 5% of your new sales figure. Calculate this as a dollar expense and enter into your budget template. Enter every other figure into the budget template using last year’s figures as a guide to get to that new profit figure at the bottom. What does it look like? What percentage of sales is it? Continue to play around with these figures to arrive at a profit figure that you feel is achievable and one that you feel happy with. Then it is onto the business plan to ensure that the budget goals you have set yourself can be achieved.

Did you know that if you increase your sales by just 1% and reduce your COGS and Labour expense by 1% each then you can increase your profit by up to 25%. It is the only time when 1 + 1 + 1 = 25.

The benefit of preparing your budget is that it gives you the KPIs to implement in your business. KPI’s you can share with your team and make them accountable for achieving them. Basically it gives you the road map for running your business into the year ahead.

Elizabeth GillamElizabeth Gillam founder and CEO of Franchisee Success creates High Performance Franchisees. Having owned and operated three franchised food businesses; Boost, Healthy Habits and Bucking Bull; she knows what it takes to operate a profitable food franchise.  In her recent book, Upsize your Profit – 6 steps to running a profitable food franchise she outlines how franchisees can ACE their franchised business unit.

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