Careful budgeting will help you manage your business’s performance, says Sian Nisbett…
The key to financial stability is to understand your business and be able to accurately predict where it’s headed. Budgets force managers and owners to consider ‘what if’ and how any fluctuations or change in trends may affect their business sustainability.
In my business, the use of budgeting and reporting helps managers and senior staff gauge their own performance. It enables the senior staff to have a joint view of how the overall business is performing alongside how their particular nursery contributes to that.
At a basic, one nursery level, it’s even more important that managers and owners have a clear vision of their budgets in order that they can control spending and outgoings and monitor income. Income is often overlooked when planning budgets, but it is important to keep it in mind. If your income drops, this will affect every other part of the budget, which will need to be reduced in order to counter the drop in income. If you aren’t monitoring it, how will you know when to react?
In our business, 75 per cent of our entire costs are staff salaries. This is the most sensible starting point when looking at your costs. Are you overstaffed in any areas? Could your rotas be tweaked to reduce your costs? A good example of this is where one of my nurseries was overstaffed on a Friday but understaffed and relying on bank staff on a Monday. Jigging the rotas round meant that we were able to staff both days properly, and avoid any using bank workers, saving £100 per day. Over the course of a year, this equates to over £5,000 which is a massive saving, for just the sake of juggling rotas!
The next biggest spend is rent. Why not try to negotiate a rental reduction or freeze at your next opportunity. My motto is that if you don’t ask, you don’t get!
Every month, we produce management accounts, which are reviewed and passed on to the managers. These accounts use a ‘traffic
light system’ that highlights underspends (green), slight overspends (amber) and huge overspends (red). This system ensures that anyone can pick them up and see which areas need to be addressed. In a single setting, this can be done as simply as using a highlighter pen and having a 15-minute conversation every month with those who have control over spending.
By allowing my managers to access these reports, I’ve given them the ability to control their own spending. They have an understanding that there is not an endless pot of money that can be spent on resources, but they also understand that if they make savings in some areas of the budget, money can go towards other areas (a good example of this is where a manager made a conscious effort to reduce spending on bank staff salaries in order to save money to refurbish the sensory garden). It’s a win-win situation!
Sian Nisbett is the director of Dizzy Ducks Day Nurseries Ltd, an ‘outstanding’ provider which operates four settings in Essex.