An editor's guide to budgeting; a hands-on explanation of the editorial budget: what it is, how it works, and how to construct it so it works for you - includes related articles

An editor's guide to budgeting As an editorial manager, you live and die by the editorial budget. Assuming that you do not work for one of those rare companies that insulates you from the process, the budget, next to the editorial plan, is the most important document you have to produce each year. Producing, and revising, that document can be tiresome and frustrating. But it pays to do it right, and that is what this article is about.

Doing a budget right means starting with a sound editorial plan that is consistent with the publisher's objectives. It means collecting and analyzing the right data, and doing accurate computation. It means carefully documenting the rationale for each line item and for each subsequent revision of that item.

That's not all. Budgeting is, or should be, continuous. Conditions, staff and even plans change during the budget year. Your management may not want to deal with a new budget in midyear, so you may be stuck with the figure on the bottom line. But a good budget will give you the confidence you need to move money around.

When you start with a good plan and a good budget, you are well on your way to effective cost control. You need to add accurate, timely feedback on expenses. And you need to communicate cost guidelines to those on your staff who commit money.

All this doesn't have much to do with your primary goal, which is to put out an excellent product. But it has a lot to do with your publisher's primary goal, which is to make a profit. And there is nothing quite like meeting a budget to persuade a publisher that you know what you're doing.

The editorial plan is, or should be, more than merely a budget-support document. If your publisher does not require a formal plan, you ought to draft a good one anyway. This article is not about editorial planning. But for budget purposes, the plan should spell out the following five points:

1. Size of the editorial hole you expect to fill, month by month. If you run a weekly or daily and must allocate costs by issue, you will need more numbers.

2. Shortcomings of the product that your reades or advertisers already perceive or are likely to perceive. Be sure your publisher agrees.

3. What, if any, changes that affect costs you will make to address those shortcomings. Those might be changes in a) the allocation of space to features, departments and columns, b) the ratio of staff-written to outside-authored material, c) the level or style of reporting, writing or editing, and d) the quantity, type or quality of illustration.

4. What, if any, changes you will make so that staff operations will be more effective, more efficient, or less costly.

5. What all this means in terms of staff size and, roughly, total editorial expense.

Your goal as chief editor ought to be to produce the best editorial product the marketplace will support--not to be a hero to the controller. In practical terms, that means grabbing as many dollars as you can persuade your publisher to give you, provided you know how to spend those dollars effectively.

So, your first editorial plan ought to be as aggressive a plan as you can reasonably support. Realistically, there's not much point in building a plan that signficantly boosts editorial cost as a percentage of expected revenues--unless you've already won that point. That caveat aside, let the publisher worry about what he can afford. He'll be sure to let you know.

The editorial plan, of course, is not a static document. If you can't get the money to support the plan, you'll have to trim back. Conversely, your publisher may decide that market conditions call for a more aggressive editorial stance, and more money to back it, than you had planned. But even if your plan sails through the review process without a hitch, the plan and the budget may be out of data six months later--or one month later.

Once you have done the hard thinking that a good plan requires, you are pretty far along in creating the editorial budget. The rest is detail--albeit important detail that deserves the utmost care.

Too many editors slop through a budget--and then complain about it. Remember that the publisher has to defend his plan. He must believe that there will be a reasonable return on any incremental investment in editorial, and he must be able to communicate that belief. He may not wnat to fight you, but if you make it hard for him to back your budget with the higher-ups, don't expect him to hang tough on your behalf.

So, if you want to add a person to the staff, take the time to prepare a rigorous justification. What problem will be solved? What wil be the impact on the product? How is that impact important to the success of the magazine? Take the same care in justifying a major increase in the cost of outside illustration, outside manuscripts, or travel and entertainment.

Some justifications are simple. If you plan an increase in the number of editorial pages, it is not hard to justify an increase in a page-related cost, such as illustration. And if you plan to add a staffer who will travel or entertain, it is not hard to justify an increase in the T&E budget.

But even here, rigor helps. In the case of a bigger hole, for example, if you're going to put most of those additional pages into your feature section, don't use as a multiplier your average cost of illustration per page. Try to figure your average cost of illustrating a feature page. Such nit-picking takes extra time, but it adds to your credibility.

Salary is by far your biggest budget item. Depending on what your company includes in the eitorial budget, salaries and fringe benefits may be one-half to two-thirds of your total budget. Because of its size, and because of its human implications, salary will account for a major portion of your budgeting effort.

You may have to deal with planned staff additions or terminations. Remember that the budgetary impact of a staff addition depends on both the size of the salary and the timing of the start. If you do plant to add someone, be conservative as to cost. Assume that you will have to pay a salary near the top of the range you have set as acceptable, and that you will find your staffer sooner rather than later. Together, those assumptions may give you some fat to cut when the knives come out.

If you're going to fire someone, don't forget severance and unused vacation pay. The termination may be set for March, but you may be stuck with the salary into May or even later.

That's all pretty simple. What makes salary budgeting complex is raises. Usually you must distinguish between so-called merit raises and raises that go with a promotion. You must consider both size and timing. And you must consider any limits that your company or your publisher imposes on the raises that may be given.

Few editors do this exercise for the first time without resenting the whole idea. You are being asked to decided up to 18 months in advance what raise someone should get. How can this be reconciled with the principle of tying reward to performance?

Well, remember that when you budget, you are not taking a salary action, but merely providing financial space for it. When the time comes, you may decide on a different action. If you decide to give a bigger raise than you had planned, you will try to make room for the difference by adjusting another part of your budget--probably someone else's raise. In fact, though, you will usually find that your raise projections for established staffers look pretty sound even a year later.

Decision making is simpler if your company has a stringent policy on the timing of raises. Some companies make all routine merit raises effective January 1. Others, however, tie raises to the employee's anniversary date. And some companies provide for merit increases at six-month intervals for lower salary levels.

When you know what you want to do, construct a spreadsheet--by hand or, preferably, by computer using Lotus 1-2-3 or a like program. Provide a row for each current or planned staffer, a starting column for year-end, and a column for each month of the budget year. Enter the numbers, do the summary calculations carefully, and provide for cross-checks. A mistake could be at least a small disaster.

With a good spreadsheet you can produce an accurate budget total for the year, as well as monthly-by-month totals. You can also produce month-by-month cumulative totals to help in cost control, although your accounting department may do that for you.

You can do a lot more with a salary spreadsheet if you wish. If your company has a salary administration program based on grade levels, add a column to the spreadsheet. In that column, insert next to each staffer's name a percentage that indicates what proportion of the salary range for each peron's grade is encompassed by his projected salary at the end of the current year. If the allowable range is $23,000 to $32,000 and projected year-end salary is $27,000, for example, the figure to insert is 44 percent.

A useful perspective

This figure gives a useful perspective when you're deciding on the size of a raise or a starting salary. Indeed, some salary administration plans put additional restrictions on raises when that figure is greater than 50 percent. And some plans make it tough to hire someone at that level. If your spreadsheet is computerized, you can simplify this step by constructing a look-up table that contains the salary range for each grade and a formula that automatically calculates the percentage.

If you have a large staff, in fact, it's very tough to do a first-class salary budget without a computer. With a computer, for example, it is simple to add a column in which you insert the tentative annualized raise, and two more columns in which you insert the numbers of the month and day in which it is to take effect. With the right formula, the computer can look at those three columns, then calculate the monthly change and insert it under the correct month or months.

The computer also makes it easier to deal with company-imposed limits on raises. Add a column in which the computer can insert the size of each staffer's raise as a percentage of his salary. You could go further and have the computer insert, say, the word "no" if the proposed raise exceeds the grade limit.

Individual raises aside, many companies impose a percentage limit on the total amount of money that can be spent on merit raises. The percentage is often based on the total of the year's starting salaries. You can devote a cell of the spreadsheet to keeping a running total of the merit raises, doing the division, and displaying the percentage. This won't work, of course, unless you enter promotion raises in a separate column and instruct the computer to ignore them in this operation.

If you have a good staff, the allowable raise total is always less than the sum of the actions you would like to take. The computer doesn't give you any more money. But it sure makes it easy to play with the size and timing of raises until you have used up all the money allowed and no more.

Unless you are a genius, your first crack at the salary budget just won't add up. Making the numbers work and, at the same time, being fair to your people normally calls for quite a few iterations. If you have a staff of any size, and if you do it the old-fashioned way, it's mind-numbing work. With a computer, it's almost a snap.

Zero in on T&E

On many business magazines, travel and entertainment is the biggest single budget item after salary that you can control without having a visible effect on the product. You can't do a whole lot about the salary line once your staff is set. So it's important to know a lot about where your T&E money is going.

The key step is to break down the T&E budget by individuals. You may already be aware that editors with supposedly similar jobs spend widely varying amounts on T&E. It doesn't matter a whole lot what you say to them. Some editors love to get out and hobnob with their sources and will look for reasons to do so; other editors will do their utmost to avoid traveling. On a large staff, you are likely to find that the difference in T&E dollars between your least-traveled editor and your most-traveled editor is 100 percent or more.

Not just a lump sum

So your T&E budget ought to be not just a lump sum, but the sum of individual budgets. Theoretically, those budgets will reflect the varying missions you have assigned your staff, and certainly that's the only way to go for new editors. But for existing staff, you are more likely to base the T&E budgets mainly on past experience.

If your staffers are required to attend one or more big industry shows during the year, you may want to budget that expense separately as a lump sum. That makes the rest of the T&E expense more visible and thus more controllable.

Breaking down the T&E account results in a more accurate budget. Three other pluses:

* You can more easily track and control T&E expenses during the year.

* You can quickly adjust the T&E budget when you have a staff change.

* You can easily show your publisher where that big number comes from.

Besides salaries and T&E, an editorial budget normally includes the following four major categories, which, except for the first, may or may not be broken down:

1. Fringes: Budget for fringe benefits by multiplying salary figures by a fixed fraction, furnished by management.

2. Contributors: This means freelance writers, stringers, outside authors, columnists, etc. It may also include outside copy editing, proofreading, translating and other editorial services.

3. Outside art: This means outside photographers, purchased photos, outside illustrators and draftsmen, outside layout artists, and related copying services.

4. General support: This may include such disparate costs as phone, postage, messenger service, copying, recruitment, temporary help, stationery and other supplies.

But there's likely to be more. If you have bureaus of your own, for example, the overhead costs will be a major item even if much of the expense falls on your general salary and T&E lines.

Almost certainly, you will have to wrestle with some major pre-press costs: separations and typesetting.

Not so many years ago, typesetting was done in the printer's plant and was considered a mechanical expense. Editors could run up AA charges, but the production manager had to budget for them.

As computerized typesetting becomes the norm, more and more publishers, understandably, treat typesetting as an editorial budget item. If you send your files to a service bureau, you'll base your budget on the contract and the projected size of the editorial hole. If you have an in-house typesetting system, you will probably be told how to budget that item. You can expect to see the same trend, and the same alternatives, as publishers move into electronic page make-up.

Finally, if your company believes in fully allocated costs, you will have other items to deal with: the depreciation cost of the furniture and equipment you use, your share of maintenance contracts, and your share of corporate services--for example, bureau Telex charges or the cost of an in-house Atex system.

Companies vary widely in the amount of detail they want to see in an editorial budget. I've worked with six-item budgets and with 55-item budgets. Most fall in between.

The finer the breakdown, the more work you have to do. The coarser the breakdown, the less clearly you can see, and control, where the money is going.

Your company's budget categories may not be entirely appropriate for an editorial operation. When it comes to mail and delivery costs, for example, a category for postage and another for express charges are probably all you want or need. But because of the spending patterns of other departments, your controller may insist on a breakdown of postage into first, second, third and fourth class.

On the other side, you may want better visibility for some expenses than the company system provides. If a category such as outside art, for example, produces big numbers, you might consider separating out those costs having to do with the front cover. If "contributors" is a major item, you might want to isolate fees for freelance writers.

The nearest way to separate such costs is to get the publisher and the accounting department to set up some new account numbers for you. If that idea doesn't wash, then you will have to set up some internal bookkeeping.

Projecting costs

For most budget categories most of the time, the best way to figure next year's expense is to start with current expense. But to project those expenses with reasonable accuracy, you have to know which expenses vary with staff size, which vary with number of pages, and which are subject to contractual or inflationary increases.

Let your own experience be your guide. But you'll probably find that telephone, postage, messenger and copying costs correlate better with staff size than with issue size. Keep in mind your planned staffing level when you budget these costs.

Obviously, the reverse will be true for illustration cost and pre-press charges, and probably for contributions cost as well. Check your operating statement and divide your year-to-date costs in these categories by the cumulative number of editorial pages published to get cost-per-page figures. Then multiply by next year's estimated page total.

In figuring current per-page cost, remember that some charges may lag. Fiddle with the numbers to make sure, say, that a mammoth January issue is not mated with costs actually incurred in a slack December. And while we're talking fiddling and December, be aware that some publishers and controllers like to play games with year-end expenses, pushing them forward or backward to achieve a financial objective.

Once you have numbers based on changes in staff and pages, consider inflation, contract provisions, and other pricing factors--a freelancer's grumbling, perhaps--where they apply. Your company may specify inflation factors to be used for various budget categories.

Month-by-month analysis

When you get this far, you have an annual budget that you can propose and confidently support. Chances are that it won't be your final budget. But when everyone does sign off, you still have a further budgeting job to do, and that is to show how the money will be spent month by month.

Because you have figured the raises for your staff and have done your salary worksheet, you have already done the toughest part of this job. And you will want to spread many items, such as phone cost, evenly over the year for want of any sensible alternative.

But it's important to spread major page-related costs according to expected issue size. You have those sizes in your plan. Once again, remember that charges may lag behind issues.

When you spread the individual T&E budgets across the year, keep in mind special projects that may require more travel in certain months, as well as the time needed for new staffers to make contracts and get up to speed. And remember that it takes time to process expense accounts. Budget T&E expense for the month after you expect it to be incurred.

Beyond that, you may know that a certain issue will call for unusually extensive use of freelancers or four-color art. If you budget accordingly, you are less likely to outrun your budget before you get to those bumps, and less likely to frighten your publisher when you do get to them.

Next, cost control

When you have done a first-class job of budgeting, you have in hand one of the two tools you need for a first-class job of cost control.

The other tool is the monthly operating statement. You must see a copy, even if the accounting department has to construct a special extract for you so you won't be upset by seeing how much money the sales department spends. The operating statement should show you how much you have spent to date in each budget category and how that compares with the cumulative expense you had projected in your budget.

Look for trouble. If you see a major item that's out of line, jump on it in a hurry. Talk to the people closest to that item and try to find the reason for the discrepancy. Remember that if something is spinning out of control, it's had a few more weeks of spinning since the accounting department collected its numbers.

Sometimes it's just as important to worry about an item that is under budget. I recall a desperate publisher who slashed the editorial T&E budget by the amount that cumulative expense fell short of budget. In that case, the chief editor had failed to spread his T&E budget properly and instead was "saving up" for a major trade show. In another case, an illustration budget was chopped because some big bills came in very late. In both cases, the chief editor might have forestalled trouble if he had reacted quickly to the operating statement.

Spread the load

If you have a large staff, don't try to prepare the budget all by yourself, and don't try to control expense all by yourself. Have the senior editors, for example, tell you what they want to do about raises and about T&E for the people who report to them. And make sure they get a monthly breakdown of T&E expense, or at least of that part that applies to their people.

Similarly, have the art director tell you what he wants to spend on outside photography and illustration, separations and support services. Then hold him responsible for controlling those expenses. That means that he, too, will have to see at least part of the operating statement. And he may have to do some bookkeeping on his own.

If you master the process of rigorous budgeting, you will be equipped to deal with two curve balls that a publisher may someday throw you. And it won't hurt to do a bit of thinking in advance about each:

1. An arbitrary reduction: Your editorial plan has been approved and you have prepared a budget to implement the plan. Out of the blue, you are told to cut the budget by $50,000.

Assuming you have made an honest budget, either put up a fight or change the editorial plan. If you change the plan, make sure the publisher knows it. Don't let him think that you have suddenly found a way to do everything you planned to do for $50,000 less. Spell out what the change will cost in product quality. And do it on paper.

2. A "zero-base" budget: A request for such a budget means that you build an editorial plan and budget giving no consideration at all to current staff, how the magazine now reads or looks, or how it now gets to the printer. Such a request may come if your book gets into deep financial trouble, or even in good times if you present a very expensive editorial plan.

I don't know of a case where someone implemented a zero-base plan. But to do one, you'll have to think hard about what your readers really need, about quality versus cost, about the criteria for selecting staff, about how to divvy up the work, and so forth. And that makes it a good exercise.

Maybe your publisher will never throw you either of these curves. But it wouldn't hurt to do some quiet simulations. The results may make your next editorial plan just a bit better and your next budget just a bit easier to defend.

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