How to Start & Run a B&B BandBED2eBook-1 | Page 16

Chapter Three – planning your business
Budgeting
Don’t skip this section! You might be tempted to yawn at the idea of budgeting, but a
vast number of small businesses fail because they got this basic element wrong.
Again, as with Business Plans, the “Business and Management” shelves in every
bookshop are groaning with fat volumes on budgeting. These are full of impressive
and daunting jargon. Yes, there is a science to budgeting, and David had to produce
very detailed budgets to convince the venture capitalists and bankers to lend several
million pounds for his management buy-out some years ago, but here the “horses for
courses” rule applies: keep things as simple as they can be for the business decision you
are making and the number of outside participants.
We will try to cut through to the bare essentials of budgeting which you will require in
taking your own decision about your own property, without outside investors.
Let’s take that famous business model: running a whelk stall. After all, it is a common
accusation against the disorganized that they “could not run a whelk stall”, as if
nothing could be simpler. This jibe is typically hurled in Parliament from one political
side to the other.
How do you successfully run a whelk stall? This seems and odd question, but bear
with us.
What is “success” for the whelk stall owner?
• Selling all the whelks?
• Selling for the maximum price?
• Making the most sales turnover?
Once you think this through, it is clear that no one of these answers is the whole
answer. If you sell all your whelks for too low a price, for instance, you may still make
a loss. Even if you sell out at a good price, you may make a miserable return if your
stall was very expensive to buy in the first place, and did not last as long as you had
hoped.
Running a whelk stall is Fred’s livelihood. He lives on the net return of the whelk stall
week-in, week-out, so he measures its success in terms of long term sustainable
profitability. This simple-sounding measurement of success, though, is in practice a
complicated mixture of (taking only the basics):
•
•
•
•
•
The cost of the stall and equipment (capital costs)
The cost of financing this if you are paying interest on the money (finance costs)
The cost of buying the whelks each morning from the wholesale fish market, and
other daily essentials like ice, gas bottles for cooking, polystyrene tubs,
condiments etc. (direct costs)
The wages of your stallholder, if you pay anyone (payroll costs – an “overhead”)
Any fees you have to pay for your ‘pitch’ (another “overhead”)
How to Start & Run a B&B
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