SKILL SETS: BUDGETING

Building a Better Budget, Part 1: The Process and the Plan

by Marion Gropen

Building a budget is arduous, and many smaller publishers avoid it, feeling that it is only a waste of time. After all, as owners of small publishing companies, most of us have a good idea of their financial status, and good ideas of how much we need to sell and what limits our spending must observe if we are to be, and to stay in, the black.

That attitude, however, misses much of the point of the budget process. Many benefits of budgeting lie in the things you learn during the process of building the spreadsheets and analyzing them. After you have built your budget documents, you can use them in a variety of ways, and these also confer benefits.

So, what is the basic process?

In essence, you:

• Develop your strategic plan for the midterm future (not just for one year, but for

three to five years).

• Add tactical specifics to that plan for the near term (one to two years).

• Test that plan for viability.

• Add yet more detail, down to every expense line in your income statement for each

month. (If you have separate departments, this is where they all get into the act,

producing separate budgets.)

• Integrate the results, check for assumptions and asset and cash-flow requirements,

and verify that everything is plausibly achievable.

• Celebrate briefly. Then execute your plans.

That sounds so very simple, doesn’t it? And yet, we all know that the devil is in those details.

The Strategic Plan

Start with the reason you’re publishing books. Since there are easier ways to make a living, why is your company in the book business? Who are you trying to serve? What needs are you trying to meet?

Also consider whether your market is going to be marching in company with the rest of the economy. Are people going to need more (or less) of what you offer when times are tough? Since it’s very rare that a market is immune to economic change, you may want to add a specialty that responds to the economic forces in the opposite way from your primary market. Then, whether the country is doing well or not, you will have something to offer and be moderately insulated from the turmoil.

When you know whom you’re serving and how, you can choose manuscripts that have the same sort of focus and offer some sort of marketing synergy. You can also build a reputation with authors, agents, and editors at other publishing companies so that you are offered more appropriate manuscripts, and so that other companies look to your list when they want to purchase subsidiary rights.

The Tactical Specifics

Look now to the tactical level of your plan. Strategy is a very high-level picture painted in the broadest of brushstrokes. Think of it as something like a photo from space. Tactics are more like a picture taken from a tower or a low-flying plane. The picture is still going to cover a lot of ground, and the details may be lost in order to help you pick out the best direction to follow, but it’s a lot closer to what you’ll see when you’re on the ground trying to get to your goal.

The questions you ask here include:

? What type of distribution is appropriate for reaching your market widely and cost-effectively?

Should you (can you?) use retail outlets beyond bookstores to find your readers in greater numbers? If the answer is yes or maybe, identify candidates for nontraditional distribution.

Look at every distribution channel you now use, and ask yourself how it contributes to your bottom line. I have seen companies improve their profit by reducing their sales. They stopped selling into certain markets that required higher discounts, more expensive insurance, and/or more staff time.

? What partnerships and alliances can you form with other players inside and outside the book business? What will you be able to offer them, and what should you ask them for?

? What type of manuscripts will you be looking for? How many books do you want to have in your pipeline at any given time?

? How much working capital will you need to support the inventory, development costs, and unpaid (wholesaler and retailer) invoices, among other costs of running your company?

? How many people can you afford to have on staff, and how will they be able to keep the book-production pipeline from becoming jammed? How much of your work will be done in-house, and how much will be done by freelancers (or even by authors)?

? What formats will work best for your market and your material? What developments might occur while the material remains valuable? (Answers to this question should help you decide what you should be asking for in your contract’s boilerplate.)

? Look at every aspect of your operation, and ask yourself what it contributes to the success of your company, and whether you can improve it incrementally, or by making some sort of radical change, or even by doing away with this chunk of your business altogether.

Once you have a bird’s-eye view of the route you want to follow, it becomes much easier to project sales and expenses, cash flows in and out, and all the other elements of your financial picture for the next few years. The next articles in this series will show how you can do those projections, and how you can use them to test the viability of your strategic and tactical plan.

Marion Gropen consults with micro- to medium-sized publishers on financial and operational issues and offers consultations by the question for smaller publishing companies. She recently published the first part of her e-book series, The Profitable Publisher. To learn more, visitGropenAssoc.com. To contact her, e-mail Marion.Gropen@GropenAssoc.com or call 888/3GROPEN toll-free.