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Financial Management Primer
2012 Advanced Magazine Institute
Entire contents © 2012 Sabatier Consulting LLC All Rights Reserved
Planning a Budget
Why Budget?
An effective budget should:
1. Incorporate the budgeter's goals and aspirations as they relate to his or her partnership with the company;
2. Reveal the budgeter's perception of the realities - money, people, circumstances - that will facilitate or impede reaching those goals;
3. Propose a plan for using those realities to reach the objectives.
Planning a Budget
Steps in creating your budget
1. Review prior performance and numbers (if not a launch)
2. Tie it to a plan-contributions from each dept
3. Create at least two “scenario” budgets, i.e.
realistic and stretch
Creative Budgeting
Too often efficient management is identified with cost control. It is easy to forget that the primary objective is not to save money, but to make money.
This is particularly important when magazines are under pressure, as they are in today’s economy.
Creative Budgeting
The way to deal with difficult times is to build more things that make money, not to hack away at the fabric of the company to deliver a temporary profit.
Creative Budgeting
There’s a major difference in attitude between the publisher who sees his job as reducing spending by 10% and the publisher who sees his job as increasing earnings by 10%.
Creative Budgeting
Budgets are frequently the principal instrument for introducing control from above. They are meant to be planning tools relating vision to verity.
Creative Budgeting
An effective budget should: Incorporate the budgeter’s goals and
aspirations
Reveal the budgeter’s perception of the realities – money, people & circumstances
Propose a plan for using those realities to reach the objectives. Numbers are meaningless unless related to objectives and circumstances.
Managing Your Budget
Managing expenses and increasing revenues.
1. Monthly comparisons of actual performance against budget are prepared.
2. Significant variances are reviewed and explained
3. Summaries are prepared and submitted for review.
4. Corrective actions are taken when necessary.
Managing Your Budget
Managing expenses and increasing revenues.
Budget violations indicate a problem, and most problems are rooted in one or more of five mistakes:
1. The budgeter's goals were unrealistic.
2. The budgeter overlooked or misunderstood the realities.
Managing Your Budget
Managing expenses and increasing revenues.
Budget violations indicate a problem, and most problems are rooted in one or more of five mistakes:
3. The budgeter's strategy for reaching the goals within the given realities was defective.
4. The budgeter did not follow the intended strategy.
5. The realities changed in a way that was not foreseen.
Managing Your Budget
Key Drivers Magazine Monthly/Issue Analysis
Operating Statistics
Advertising Statistics
Circulation Statistics
Editorial Statistics
Production & Distribution Statistics
Managing Your Budget
Sample Consumer Publication
Operating Ratios Editorial 8.0%
Gen & Admin 8.0%
Advertising 18.0%
Circulation 14.0%
Manufacturing 30.0%
Ex.'s % of Rev. 78.0%
Net 22.0%
Managing Your Budget
Beware of Volume
The fallacy that big is better arises in every business, but it is
particularly prevalent in magazine publishing. Neither more circulation nor more advertising is always a blessing. Volume is dangerous both because it can look like success even when it is a disaster and because the greater it gets the more difficult it is to control. Theoretically, costs should go down as volume goes up. Practically, volume tends to camouflage costs, particularly in personnel, waste and overhead.
Characteristics of Healthy publications
Fill an information need/how to
Strong readership base w/high renewals
Endemic & healthy advertising base
Higher frequency
Diversified revenue streams
Good quality of earnings
Characteristics of Healthy Publications
Maintain tight ad/ed ratio
Positive growth trends
Margins healthy
Invest for growth at a profitable level with editorial, design, advertising and circulation
Characteristics of Healthy publications
Good management team in place
Effective sales force
Staff support and resources
Cash Flow Projection & Analysis
Difference between cash and profit
Difference between budget and cash flow projection
Cash Flow Projection & Analysis
How to make a cash flow projection
For each month in the future, make a projection of amounts of cash
inflow.
Cash received from subscribers,
Cash received from advertisers,
Cash received from single copy sales,
Cash received from the sale of services,
Cash received from bookstores, distributors, vendors, etc,.
Cash received from donors,
Cash Flow Projection & Analysis
How to make a cash flow projection
For each month in the future, make a projection of amounts of cash
outflow.
Cash paid to suppliers, printers, etc.
Cash paid to employees,
Other forms of cash out.
Cash Flow Projection & Analysis
Sabatier Consulting
Washington, DC / New York, NY
703.536.2635 / 212.213.1550
Twitter: Louannsabatier
www.sabatierconsulting.com
