Budgeting and Forecasting Solutions for Portfolio Retailers

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Budgeting and Forecasting Solutions for Portfolio Retailers

By Daniel G. Reynolds, Vice President and CFO, Calloway's Nursery, Inc

Daniel G. Reynolds, Vice President and CFO, Calloway's Nursery, Inc

Our company, Calloway’s Nursery, operates North America’s fourth-largest retail garden center chain. Since 2016, we’ve been part of a broad portfolio of companies wholly or primarily owned by an investment company.

Once the transaction closed on our acquisition, we revised our budgets, and transformed all of our financial accounting substantially and reporting to conform to the investment company’s standards.

The investment company requires a different chart of accounts for line-item reporting than we use for internal management reports. Similarly, the investment company needs all budgets and stories to be on a calendar month basis, with the year ending on December 31.

However, like many retailers, our operating calendar and internal processes continue to be on a daily/weekly basis, and certain expense details in our chart of accounts continue to be important for management and compliance purposes.

All of this causes complexity in the form of separate budgets and reports for internal (Management Budget Reports) and external (Investor Budget Reports) decision-makers.

This complexity is magnified when we prepare our annual budgets. The budget preparation is compressed into two weeks each December, with the following requirements:

• Budgets for the entire chart of accounts and all financial statements (income statement, balance sheet, cash flow statement, shareholders equity statement);

• Budgets for each month and quarter;

• Budgets for each week;

• Line item detail for both Management Budget Reports and Investor Budget Reports;

• All high-level results (Revenue, Total Expenses, Net Income must agree for at least annual totals).

Of course, the weekly calendar (52 weeks, with 364 days) and the monthly calendar (12 months, with either 365 or 366 days) do not match from year to year. Further complicating the forecast and budget process is Holidays, which are essential for retailers. Some Holidays can move by one week (for example, Thanksgiving) or several weeks (for example, Easter) from year to year.

"With the growing presence of private equity ownership in the economy, it seems like a budget software product providing this functionality would have a potentially lucrative market"

Though most of the commercial budget software we’ve reviewed provides the ability to prepare budgets at a detail line item level, with roll-ups to higher summary levels, we haven’t identified a technology solution to the daily/weekly/ monthly complexity. Accordingly, Excel is still our tool of choice/necessity.

We need a revenue forecasting tool that would examine our daily:

• Traffic data;
• POS data;
• Revenue data at a category level;
• By store and online channel.

We would need the software to provide a trend-based revenue forecast:

• By category;
• By day;
• By store and online channel.

The forecast would need to take account of the different dates for key Holidays for the base historical and budget years. We would then roll these forecasts up to either an operating (daily/weekly) or financial (monthly) revenue forecast.

We need the ability to provide high-level adjustments to the trend-based forecasts (for things like store remodels, road construction projects, etc.) that would then be pushed down to the detailed estimates.

Once the revenue forecast is complete, it would be incorporated into the budget.

Likewise, we need to use daily time clock data to forecast labor costs daily, which would then be rolled into weekly and monthly budgets.

For other expense items, we need to designate whether the base amounts are incurred weekly (such as advertising costs) or monthly (such as rent expense), with a given algorithm that converts weekly values to monthly prices, or vice-versa.

We have the data in our enterprise systems to support our budget requirements; we don’t have the technology to do it efficiently.

With the growing presence of private equity ownership in the economy, it seems like a budget software product providing this functionality would have a potentially lucrative market.

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