Budget Planning for A New Year By: John Stiernberg

November 15, 2013 by John Stiernberg

We first talked about revenue planning in the November 2009 issue of Mobile Best during the depths of the recession. While things have improved (maybe even a lot in your area), the market is still challenging. Entertainment buyers have more options than ever and their budgets are squeezed. Your costs have likely gone up (e.g. transportation, promotion, etc.).

Now is the time to plan your budget (revenue and expenses) for 2014. How can you forecast revenue beyond the gigs you have already booked? How do you estimate your operating expense and determine how much to pay yourself? This article looks at budget planning from a practical point of view and offers three action tips to optimize results.

WHAT ARE MY REAL COSTS?

It is essential to estimate your business operating costs early in the budget planning process. This will give you a solid idea of how much you need to sell just to cover costs, let alone pay yourself and have some money left over.

Ask yourself these questions:

How much did I spend in 2012 and 2013 in each key expense category?

Examples include 1) equipment purchases and maintenance, 2) promotion, 3) transportation (getting to gigs), 4) bookkeeping and tax service, 5) information technology and technical help, 6) office expenses (telephone, Internet, rent, utilities, etc.).

What are the variable costs (most notably agent commissions, spot equipment rentals, and support team)?

Are costs going up, going down, or staying about the same?

Where do I need to cut? Where do I need to increase?

While the answers to these questions may be sobering, you will get grounded immediately.

Then ask yourself the most important question:

How much do I want to make for myself?

mb152_140Of course it is easy to answer that question by saying “tons of money” or some lofty albeit worthy goal. My advice is to establish a real number for the year that covers both your business expenses and your personal financial needs (household, lifestyle, taxes, savings).

HOW DO I FORECAST REVENUE?

The simple formula for revenue forecasting is this:

Average $ per gigs x number of gigs = total $ revenue

Here are five key tips to make the planning process easier…

Forecast for the full year first, and then break it down by month.

Break down your revenue forecast into types of gigs. This will provide clarity on both pricing (e.g. corporate meetings usually pay more than local club dates) and seasonality (e.g. wedding and prom season).

Use your prices from recent gigs to help stay on the conservative side. Your opportunity to increase prices in 2014 is an upside to the budget.

Feel free to change the mix. If you want to do more adult anniversary parties for top dollar and fewer kid birthdays as fill in dates, plan for it now. This will help guide your promotion plans too.

Use Excel or some other spreadsheet program, not paper and pencil. This allows you to do “what if” analysis (changing prices or number of gigs by type and immediately calculating the numbers) very easily.

BUT I DON’T NEED A BUDGET—WHY BOTHER?

Fail to plan = plan to fail. In today’s competitive mobile entertainment market, you need to know what you are doing from a financial perspective. Your budget (including revenue, expenses, and assumptions behind the numbers) is a critical success factor. Here are three action tips for getting started.

Action Tip 1: Organize and review your financial history for 2012 and 2013 (actual, plus estimate for the remainder of the year). Look for patterns in terms of pricing, seasonality, and costs.

Action Tip 2: Set financial objectives for the year 2014 including 1) revenue, 2) fixed expenses, 3) variable expenses, and 4) profit (what a concept!). Remember that a budget is neither a minimum nor a maximum—it is simply a standard to measure against.

Action Tip 3: Run three sets of numbers before you lock in to your plan. The three scenarios are 1) conservative (essential for survival), moderate (likely the one you will use) and 3) aggressive (stretch goals).

HERE’S THE POINT… Not enough mobile entertainers have a budget. As a result, they never know where they are relative to their financial objectives. Success (or failure) comes by accident rather than by design. The better alternative is to build your plan before the new year starts and use it as a guide. A little planning goes a long way!

Be sure to implement the Action Tips in sequence: 1) review your financial history, 2) set financial objectives for 2014, and 3) plan three versions of the budget (conservative, moderate, aggressive). Your budget is a critical tool for financial success.

Next time we’ll talk about the social and cultural trends that are having an impact on our industry. In the meantime, best wishes for success in mobile entertainment in 2014!

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John Stiernberg John Stiernberg (16 Posts)

John Stiernberg is the founder of Stiernberg Consulting (www.stiernberg.com), the premier business development consultancy serving the entertainment technology and music products industry. With over 25 years experience in these fields, he currently works with audio and music companies on strategic planning and market development. His book Succeeding In Music: Business Chops for Performers and Songwriters is published by Hal Leonard Books. Contact John via e-mail at john@stiernberg.com, find him on LinkedIn and Facebook, and follow him at http://twitter.com/JohnStiernberg.


Filed Under: Business, Issue #152, Sales & Marketing