Running a brick and mortar business can be challenging. Between increasing costs, operational expenses, and the constant need to stay competitive…
It can often feel like money is always tight.
But here’s the good news:
With the right budgeting approach, store owners can take control of their finances and position themselves for long-term success. The key is understanding where the money goes and how to make each dollar stretch as far as possible.
In this article, we will break it all down…
Inside this Article:
- Budgeting for Physical Stores: Why Does it Matter?
- The Biggest Expenses in Brick and Mortar Businesses
- Smart Cost-Cutting Strategies for Physical Stores
- Expense Tracking: Tips and Tools
- How to Build a Budget that Actually Works
Budgeting for Physical Stores: Why Does it Matter?
Operating a brick and mortar business presents unique financial challenges. In contrast to ecommerce, physical stores incur fixed costs that remain constant regardless of sales volume.
Rent, utilities, employee wages, insurance, maintenance. These costs must be covered month after month even during slow periods. As such, budgeting becomes critical to ensure cash flow remains positive.
Statistics from the Federal Reserve further illustrate the point. A whopping 75% of small businesses cite rising costs as their number one financial challenge.
Worse still, 56% of small companies report difficulties when paying operating expenses.
Yet those that struggle long-term? They’re the ones that lacked financial planning. By budgeting properly owners can have complete visibility into where money flows, identify issues early, and make informed decisions before it spirals out of control.
The Biggest Expenses in Brick and Mortar Businesses
Before jumping into budgeting, it is critical to first understand where expenses naturally tend to occur for physical stores. You must account for the biggest costs before making cuts.
Payroll and staffing
The largest budget item by far is staff salaries and wages. Industry research suggests that as much as 70% of a small business’s spending goes towards payroll and benefits.
Manpower is of course essential for running a successful physical store. However, overstaffing during slow periods or paying unnecessary overtime eats away at profits rapidly.
Rent and utilities
Location is key when it comes to retail success. A prime corner spot with good foot traffic may attract more customers but comes with steep rent. Electricity, water, gas etc. all add up fast too – particularly for businesses with high heating or cooling needs.
In fact…
Efficient energy management is extremely important for any physical retail operation. Many brick and mortar owners located in the South fail to realise how much their inefficient HVAC systems cost them, making it all the more vital to look at professional commercial building HVAC systems in Tennessee and Mississippi. Making upgrades to more energy efficient equipment or scheduling regular HVAC maintenance service can result in drastic reductions in utility bills year over year.
Inventory
Stocking inventory tends to fall within the range of 17-25% of a business’s overall budget. Ordering too much ties up working capital. Ordering too little? Lost sales and unhappy customers. The right balance takes careful planning.
Marketing and advertising
Bringing customers through the door requires investment in marketing. But blindly throwing money at advertising without measuring results is a waste of money. Budgeting smartly involves knowing exactly what each marketing dollar is returning.
Smart Budgeting: Cutting Costs the Smart Way
Cost-cutting can seem daunting, but it is really about being smart with spending. There are proven strategies that can slash expenses without negatively impacting operations.
Negotiate with suppliers
Always negotiate prices instead of accepting the first offer. Suppliers often have wiggle room especially for loyal customers or bulk purchases. Saving just a few percentage points on a large order adds up over time.
Optimise staffing schedules
Align staff hours to cover peak periods only. Using scheduling software and avoiding overstaffing during slow hours reduces payroll expenses. Cross training employees also enables fewer people to cover more roles.
Reduce energy waste
Simple adjustments can add up:
- Switching to LED lighting
- Installing programmable thermostats
- Sealing windows and doors properly
- Scheduling HVAC maintenance service annually
These small steps can reduce utility bills by 10-20% annually.
Go digital where possible
Eliminating paper receipts, manual inventory counting, and cash-only systems is all outmoded. Digital tools are more efficient and offer valuable data for decision making. Plus they can often be automated to save time.
Review subscriptions and services
It’s easy to forget about recurring monthly charges. Every quarter do an audit of all subscriptions, software fees, and service contracts. Cancel anything that is not providing clear value.
Tracking Expenses Like a Pro
Budgets only work if expenses are tracked diligently and consistently. Guessing where money goes leads to nasty surprises at month end.
Here are some tips on how to do it like a pro:
- Use accounting software like QuickBooks or Xero. Tools that link directly to bank accounts and automatically categorise transactions make tracking easy. They also offer reporting capabilities so you can make sense of the numbers.
- Separate personal and business expenses. Keeping them mixed together is a nightmare for tracking and causes problems at tax time. Open separate bank accounts and credit cards for the business. This makes things much easier to manage.
- Review finances at least weekly. Don’t wait until the end of the month to check the books. Schedule 30 minutes each week to spot issues early before they become major problems.
Tracking key metrics rather than every expense item helps filter out the noise. Focus on a few important ratios like gross profit margin, operating expenses as % of sales etc. These reveal the true health of the business.
Building a Budget that Actually Works
Creating a workable budget is not difficult. It does however require honesty about existing finances as well as realistic forecasting for the future. Here are steps to get you there.
Step 1: Calculate Total Revenue
Begin with how much money the business is bringing in. Use historical averages to project monthly sales revenue. Err on the side of being conservative. It is better to underestimate than overestimate.
Step 2: List All Fixed Costs
Fixed costs are those that do not change regardless of sales volume. Rent, insurance, loan payments, salaries of permanent employees. Add these up first. These expenses are required and non-negotiable.
Step 3: Estimate Variable Costs
Variable costs fluctuate depending on level of sales activity. Inventory purchases, hourly wages, shipping expenses, credit card fees. Look at past months’ expenses to come up with realistic projections.
Step 4: Set Aside Emergency Funds
Unexpected expenses occur every year. Broken equipment. Supplier price hikes. Rising costs due to inflation. An emergency cash reserve for unexpected expenses can prevent small issues from snowballing into existential threats. Aim for 3-6 months of operating expenses gradually over time.
Step 5: Review and Adjust Monthly
Budgeting is not a one-time activity. Month after month compare actual results to budget projections. Use real data that happened rather than assumptions about what you would like to happen.
Adjust budgets based on trends. Trim areas where expenses are consistently out of control. Allocate more budget to areas driving growth or where unexpected expenses arose.
The Bottom Line
Profitably operating a brick and mortar business requires more than good products or excellent customer service. Financial discipline and smart budgeting are also critical.
The businesses that win long-term? They know exactly where every dollar is spent. Ruthlessly cut any unnecessary costs. Track expenses religiously. Adjust their budgets based on reality rather than hoping for a certain outcome.
Budgeting is not glamorous. It’s hard work. But it is the foundational work that keeps the doors open and the business moving forward.
Pick one small change to implement this week. Go back and review last month’s expenses. Identify one area to immediately cut.
Make one small improvement today. Compound those small changes over time. That is how brick and mortar stores not only survive but thrive.
