Production: Budgeting Basics

By: Jerry Simpkins

Production: Budgeting Basics

At the start of my newspaper career, my first management job was at a healthy midsize daily in the state of Massachusetts. It was the heyday of newspapers: strong ad revenue, thriving circulation and a weak Internet presence. Life was good and worries about takeovers, staff reductions, declining revenues and failure were few.

I decided to review expenditures and make certain we remained financially solvent and that my efforts were contributing to a bright future. I asked for a copy of the current budget and was told by my supervisor “We don’t have one; spend what you need and just keep an eye on things.” My reply was one short word: “What?”

Coming from a strong economics background and well aware of the importance of proper budgeting, I was a bit surprised. This was not a plan for financial success, but a plan for financial disaster.

Shortly after I moved on from this property came what many of us see today: the plummeting revenues, changing demographics, circulation declines and Internet challenges.

Long story short, while I can’t say the failure of this newspaper was attributed solely to the lack of budgeting and slipshod financial planning, this masthead no longer exists. Would it be in business today had there been a solid financial plan in place to address the decline? Would it be solvent if there were a budget that adjusted expenses as revenues declined? My answer is maybe, but now we’ll never know. Another story of too little too late.

You Need a Budget Plan

What I do know is quality budgeting makes a huge difference in the way your newspaper operates and is an essential tool to survive this changing financial landscape.

The next property I moved to understood the importance of strong financial planning and a well-developed budget. They budgeted revenue aggressively yet realistically, relative to prior year actuals and current economic conditions within their market, and put together an expense budget that could react accordingly to revenue variances. Basically, there was a plan.

Budgeting takes a lot of effort. It takes a collaborative approach between all departments and a lot of give and take on the part of department heads. It’s not easy, but is essential.

Since this article is geared to the operations side of things, the concentration will be on expenses. But revenue cannot and should not be forgotten; revenue is the primary driver of all expense budgets. All other departments are along for the ride.

I’ve found two effective ways to budget expenses. One is based on prior year actuals; the other (my preference) is a zero-based budgeting process.

Budgeting against prior year actuals is what most newspapers currently follow. It’s simple and it works.

It starts by providing a documented base of past performance and depending on the changes taking place from year to year can be very effective. If there are going to be minor changes in the upcoming budget cycle, you can work these changes into the plan and make necessary adjustments as you go. Budgeting against prior year is the easiest way to put together an expense budget. Numbers are readily available (from your business office) and this in itself takes a lot of tedious research out of the budgeting process. There are many benefits to this form of budgeting—the greatest being simplicity. You are furnished with historical financials based on the actual events of the prior year and a few logical adjustments here and there produce a budget with the least amount of effort, in the shortest time. But is this the best way?

My personal preference is a true zero-based budget, with a crosscheck for feasibility against prior year, using the prior year base for comparison, but not budgeting off prior year actuals.

While I believe a zero-based budget will yield the best result, if you decide to go this way, get ready for some serious hard work. A good zero-based budget will require budgeting page counts, editions / frequency, circulation draws, special sections, etc. Coordination with editorial, circulation, advertising and your publisher are absolutely critical to making this budget work. Without the cooperation of any one of these areas you cannot put together an effective zero-based budget.

This form of budgeting takes into account each piece of work that moves through your production department. It takes a herculean effort and is not meant for the fainthearted.

A mock-up budget sheet
A mock-up budget sheet

Talk to Your Vendors

You will have to discuss with vendors projected price increases for consumables, changes in service fees, maintenance contracts and volume discounts. This is also an excellent time to consider negotiating price and even considering other vendors. This is an exercise that should be done annually, a few months before your budgetary cycle.

Many production managers regularly evaluate vendor pricing, performance and changes in consumables, but putting it all on paper and stepping through vendor by vendor, product by product annually, can prepare you for the budget cycle and often provides great insight as to what’s going on in the vendors world and how that ties to what’s going to be happening in yours.

Well before the budget cycle is the right time to review maintenance contracts and meet with vendors to discuss options. Have you used the contract to the fullest extent throughout the previous year, or can you get by with a less comprehensive contract and save a few dollars in the process?

Many of us carry too much contract. If you have a contract for 24/7 coverage, but 99 percent of your work takes place Monday through Friday, do you really need that contract, or should you consider a contract that covers 99 percent of your potential breakdowns and pay by the occurrence for service outside of the contractual time period? Once you look over things and arrive at what best fits your needs, often you can renegotiate price on your existing contract.

The next step in your annual financial review prior to entering the budgetary process is to review what you’re paying for consumables. I once worked at a daily that at the start of the budget cycle asked all department heads to call vendors and “politely demand” a five percent reduction in the cost of consumables. To be honest, my first thought was “Yeah, this is going to work out just fine. I’m going to waste my time calling vendors, looking like a total fool, and make everyone crazy for what? To be told “Sorry that just isn’t going to happen?”

Much to my surprise I was the one who was totally wrong and the approach was very successful. Most vendors truly value your business and don’t want to lose it. Vendors understand the challenges newspapers are going through today and as much as they can will work with you. If you’re struggling to meet budget and are honest with them, they will often jump through hoops to help out.

Very few of the vendors I asked were able to cut their prices by five percent, but it opened the door for negotiations and when they understood the seriousness of the situation (and chance they may lose my business altogether), most reduced their price a few percentage points and really helped us to hit a very challenging budget number. I learned a good lesson that I follow to this day; if I hadn’t asked, I wouldn’t have received anything.

Paper is without a doubt the largest expense of all consumables.
Paper is without a doubt the largest expense of all consumables.

A Few Suggestions

Now you’ve negotiated with vendors, looked over your previous years financial statements, and decided how you’re going to budget, you are ready to go. This is where my step-by-step instructional on budgeting falls short. There is simply not enough space or time to go through how each particular property should budget. Every property is unique and needs to follow what works best for them. Every paper I’ve worked at has budgeted differently; similar, but uniquely different.

I will throw out a few basics on what’s worked well for me, but again, do what works best for you. These are simply suggestions I’ve found useful when I budget.

Include your staff in the entire process. Sure, you can sit at a computer, develop a solid budget and hand it down to your staff, or you can involve your staff and make it everyone’s budget; not one that’s developed by the boss and they’re just following along. Make it their budget too. Something they can be proud of, put their name on and have ownership in.

When it comes time to put the budget together, I rely on Excel as a budgeting tool. Linking files, spreadsheets, and using the formulas within and features of Excel can streamline the process.

The accompanying chart shows a brief estimate of budgeted paper usage. If you’re printing your own products (i.e. still have your own press), paper is probably the largest expense you’ll have. I’ve altered the pricing and usage on this example to protect vendor pricing/confidentially.

Once you’ve prepared your budget the real challenge begins—doing what you signed on to do, that is sticking to the budget. Again, involve your people.

If your employees don’t know what the expectations are, how on earth can you expect them to help you meet those goals? I’ve worked at companies that are totally transparent, sharing financials with everyone in the organization from top to bottom. On the other side, I’ve worked for companies who sit on the budget like it contains launch codes for a Russian missile attack. Most employees want to be successful; they want the company to be successful; they realize that their financial health depends on the companies continued success. Either trust your employees with the necessary financial information key to their area and their buy-in or keep them in the dark and hope for the best. I firmly believe either way you’ll get predictable results.

Once you’ve met with vendors and other department heads to develop a good working budget, and met with and shared the particulars with your staff, explaining the expectations and received support from your supervisor, it is then your responsibility to achieve that budget. Granted there will be challenges along the way, events that may require a companywide re-budget midway through the fiscal year (which is very common today in newspapers), but regardless, it is now your budget.

I strongly recommend you set-up a monthly tracking tool within Excel. In your production department you should establish a “mini-business office” for all payables. You need to understand better than anyone else what you have to spend, what you’ve spent so far, and what remains each month. When you order something enter it into a spreadsheet, track all your expenditures so that you know where you’re at any point in the month verses budget (and previous year). Don’t wait for the end of the month surprise from the business office.

Knowing your budget vs. expenditures carries with it many advantages. The obvious ones being continued employment and having the financial performance of your department at your fingertips. One less obvious, yet extremely important benefit is the efficient use of budgeted dollars within your department.

In one of the larger papers I worked at we had a press supervisor who, for what he perceived as all the right reasons, would scrape by month to month on the bare essentials. At the end of each month he’d boast that his repair budget ran 70 percent under, his supplies budget wasn’t far behind, and he didn’t spend a penny buying rollers, blankets, or necessary press supplies. Then, he’d blow out a few rollers, smash a few blankets, and have absolutely nothing in reserve in either parts or money. His budget that month was a train wreck, but he was still pleased with himself for keeping spending down the previous two months. In short, he simply didn’t understand the budget. Just handing your leads a sheet of paper with the budget on it doesn’t work. Communication, education and training are all essential components of a successful financial plan.

Don’t overspend, be financially responsible, but don’t leave money on the table. Be confident in your ability to budget, believe in your numbers, monitor your spending habits, track your expenditures, and expect the same from your staff.

Budgeting really is pretty simple; it’s just numbers. Sticking to that budget is where the fun really begins.

Jerry Simpkins is the general manager at Hi-Desert Publishing in Yucca Valley, Calif. Contact him on LinkedIn.com or at simpkins@tds.net

Like & Share E&P:
RSS
Follow by Email
Facebook
Facebook
Google+
http://www.editorandpublisher.com/feature/production-budgeting-basics/
LinkedIn
Published: November 23, 2015

Comments:

Your email address will not be published. Required fields are marked *