Page 64 - Budgeting for Managers

Gathering Production Figures
There Are Not Four Weeks in a Month
A very common estimating mistake is to think quickly,
“There are four weeks in a month, so something that costs
$200 a week means $800 a month.” Four weeks is 28 days, but only
February has just 28 days (usually); four have 30 and seven have 31. If 47
we estimate based on four weeks a month, we may run out of cash
unexpectedly in long months.This is especially a problem for business-
es that run slow in the summer, where July and August are two long
months in a row.And the line items we calculate this way will be low
by about 8% for the year.
per paid workday, as we discussed in Chapter 2. An employee
typically has about 222 active workdays after vacation days,
holidays, sick days, and personal leave days are taken out. But a
regular five-day-a-week employee is paid for 260 days per year.
What Is Your Work Week?
If our store makes an average of $5,000 per day, how much
does it make in a week? That may sound like a simple ques-
tion, but it isn’t. Our store is likely to be open six days a week
or maybe seven. But maybe we’re in a business district and
we’re open just five days a week. When I was growing up in
Philadelphia, there was a restaurant called Thursday Too, which
was open three days a week.
We need to adjust our budgets for days of the week and
hours each day. How much this matters depends on our busi-
ness. For storefronts open to the public, especially, it can be
crucial.
Any business that has sales has to adjust its monthly
income expectations based on the number of work days in the
month, as well as seasonal factors. You may also have to budg-
et for extra help during the busy season or save money by cut-
ting to a four-day workweek during slack time. In making these
adjustments, you have to pay attention to available cash and
the amount of business. This is especially true for companies
that need to prepare for busy seasons: there may be much work
to be done—and paid for—before the money comes in.