Know Where You're Going in '01

Steve Vlachos and Hank Darlington have a pet saying when it comes to budgets and the direction they provide kitchen and bath firm owners.

Budgets, the two management consultants observe, are like roadmaps: With them, kitchen/bath specialists can easily access the roads they want to travel; without them, those same business owners can quickly lose all sense of direction.

Then again, as Vlachos and Darlington note, any road will do for those who have no idea where their business is going.

Kitchen and bath specialists, getting ready to turn toward a promising New Year, can ill afford to travel on just any old road in 2001. Not if they want to achieve their profit goals. Not if they want to stay competitive. Not if they want to remain in business.

All of which makes the annual ritual of budgeting more critical an act than ever right now.

Despite its importance, though, budgeting somehow remains one of the least understood and most under-utilized management tools in the arsenal of independent kitchen and bath retailers.

Vlachos and Darlington who will lead the Kitchen & Bath Design News/NKBA's highly-acclaimed "Managing for Profit" seminar series again in 2001 say it's literally staggering how many kitchen and bath dealers function without the benefit of a formal budget. In fact, only about one in every 10 dealers actually work with any type of budget at all, they contend. Even fewer, they note, find the time to actively review, and tweak, their budget on a regular basis.

The reason, by now, seems resoundingly clear: Many dealers, quite frankly, are simply uncomfortable with the numbers side of the business, and tend to shy away from it. Many, in truth, have been drawn to the industry from the design or construction sides of the business, and either don't really like, or don't have a flair for, finances. Others feel it's more creatively challenging glamorous, even to surround themselves with matters related to design, marketing or sales. In contrast, issues like balance sheets, P&L statements and cash flow either put many dealers to sleep, or cause them to break out in a cold sweat.

This, of course, is very unfortunate in light of the fact that an accurate, focused and detailed budget is a key strategic tool. Stated simply, budgets enable you to predict cash flow, forecast results and allocate funds to support all strategic decisions.

Kitchen and bath dealers need to remember all this. As 2001 budgets are completed, it's also worth remembering that:

n Budgets should be closely tied to a specific corporate strategy, in order to be certain your company has the anticipated revenue to support the business activities it is planning.

n While budgets may represent roadmaps, they should not be considered straitjackets. The cement-like, annual budgets that were once the standard can be replaced by continuous, "rolling" short-term forecasts that be updated as frequently as circumstances needed.

n Technology is not a substitute for good, old-fashioned "horse sense" about the way your business works. While it's true that software can help automate and improve the budgeting process, even the best new software is blind to organizational and operational strengths and weaknesses that only top management can identify and address.

n Budgets, goals and strategies need to be effectively communicated throughout an organization. Budgets, more than ever, are now an organization-wide activity involving more than simply one or two people working in isolation. Key employees should be actively involved in budgeting, and should be given enough time to generate accurate projections.

Budgets, as Vlachos and Darlington suggest, can help business owners get where they want to go. But, like all good maps, they've got to be devised, reviewed and relied on regularly unless you're willing to run the risk of getting you and your business completely lost.