Operations and Capital Budgets
by Gene Hahn, Financial Manager and Anya Firszt, General Manager
The Board of Directors and management are presenting the following operations and capital budgets for membership approval. We are providing you with the fiscal year 2008 (FY2008) proposed budget for comparison with the fiscal year 2007 (FY2007) approved budget. The FY2008 operations and capital budgets represent our estimates of income and expenditure for the operation of 1221 Williamson Street and our Off-Site Kitchen for the next 12 months starting July 2nd, 2007.
Proposed Operations Budget FY2008 Sales
We are projecting sales of $15,472,000 for FY2008. This sales estimate represents a 3% increase in what we estimate to be our actual sales for FY2007. Our best estimate of actual sales for FY2007 (based on three quarters actual sales data and one quarter of estimated sales) totals $15,020,000. Our latest sales estimate for FY2007 is projected to be $229,000 below our budget sales total for FY2007. The expansion of shopping opportunities in the Madison area and the physical limitations of our present facility contribute to the slowing of sales growth at 1221 Williamson Street, and the proposed budget incorporates these market trends.
Adjusted gross margin
The proposed margin represents a close approximation of the actual margin we have achieved in the last two years of operations. This margin performance does not represent an increase in our margin (pricing strategy); it instead represents our ability to achieve improved margin as we have reduced losses and increased operational efficiencies. Another way of saying the above is that we have not changed our prices for goods and services; rather we are better achieving our expected margin.
Our personnel expenses for FY08 are being budgeted within .02% of FY2007. This is “steady state” budgeting to maintain a labor budget goal of under 24%. The Board of Directors has established the Dane County Living Wage to be a goal for your cooperative—this budgeted amount meets this goal. Personnel expenses represents two-thirds of total store expenses.
Total store expenses
Our personnel and operating expenses are being budgeted for an additional $273,395 for FY2008. This amount represents a myriad of operational cost increases that will occur in FY2008. This $273,395 represents an additional 1.77% increase in expenses from our expected sales base of $15,472,000 at 1221 Williamson Street. We have conservatively budgeted a $222,000 increase in sales for FY2008 over FY2007. The fiscal reality we face in our existing facility is that we are fast approaching our sales capacity. Our existing sales growth is slowing down, while our expenses continue to grow.
We are budgeting 1% net income on the total sales dollar received, that amount is $157,650. We plan on using our net income for current store maintenance and to improve our financial strength as we move forward.
The budget being presented for your approval represents the costs of ongoing operations for 1221 Williamson Street. Pursuant to our bylaws, we need a budget to be in place on the start of the fiscal year (July 2nd, 2007) for the continued operations of our existing store. When and if we find an acceptable new store location we will generate appropriate budget information to represent a multi-site format for review by the membership.
The FY2008 proposed capital budget total is $92,200. The Co-op chooses to capitalize items that have a value greater than $2,000, and these items are depreciated.
The Co-op is in need of replacing two existing pieces of equipment—the ice machine (flaker unit) and the Oatscream machine—both have seen better days and although functioning, each is on the verge of permanent disrepair. Additionally, we are requesting a single-door refrigerated case to augment the packaged meat department.
Unexpected equipment replacement greater than $2,000
We maintain an annual repair and maintenance schedule for all major pieces of equipment (compressor, fire suppression system), and we choose to have items repaired rather than replaced when at all possible. However, there are items that choose to stop working without adherence to our replacement schedule. It is at those times we need to have a reserve to draw from to replace what cannot be fixed, and costs more than $2,000. This line item represents a conservative estimate for unexpected equipment replacement.
The balance of the items listed on the capital budget is specific to IT (information technology)-related purchases. These items are requested to support ongoing efforts or to improve the current state of managing or storing data, improve the quality of communication between sites (1221 and OSK), and marketing Co-op events and publications. These items include operating systems upgrade, wireless networks upgrade, creative software, second server cage, virtual machine server, and data management system.
Information session scheduled
An owner information session will be held on Wednesday, June 6th beginning at 7:00 pm in the Community Room. If you are unable attend this session, but have questions about the proposed budgets, please contact Gene Hahn at 251-0884 x 460, or or Anya Firszt at 251-0884 x 470 or .