The Secret to Planning for Profit

Protecting ProfitProfit is so elusive, so easy to wear away or lose altogether, that it takes enormous effort to protect your bottom line. A budget is your best line of defense in guarding your profit.

The dictionary defines budget as an itemized summary of probable expenditures and income for a given period. Another way–a much more exciting way–to think of a budget is as a plan for how you intend to make net profit.

If you want to be able to track and monitor your road to profitability, you must embrace the balanced budget. You are going to be amazed at just how easy it is to create your own plan for profit. It takes just two steps to get started

  1. Start with the Net Profit you want to earn. You should budget for no less than 10% of your annual volume because (inevitably) in the course of the year you’ll have a few “loser” jobs. And there’s the other unknowns: some materials may get damaged or a computer blows up. All these events eat away at your bottom line. So planning for 10% may leave you with a healthy 7-8% at the end of the year.
  2. Estimate your Overhead. Overhead includes all the expenses not reported as direct job costs. This includes rent, utilities, the office manager’s salary, marketing expenses, legal and accounting fees and so on. It’s not uncommon for overhead to run to 20-35% of volume in a remodeling company. These operating expenses tend to be stable and very easily estimated based on your past history and the commitments you have made.

With these numbers, you can use our simple budgeting calculator to run a number of scenarios very quickly to see what your markup must be to reach your profit goals.

We call it the Profit First System. Click Here to Access our Profit First Calculator!

Your 2013 Plan for Success

Success Plan 2013We’re two full months into 2013 and of course you’ve got a plan in place for maximizing your company’s success this year.  Hopefully that plan is on paper. Hopefully it was designed with the help of your staff.  Hopefully you rolled it out before the year began, in an all-company meeting with action points developed for how each department and each position in your company can help support a successful outcome.

Now let’s drop the hopefully and talk about the reality (for most of us.)  We were so busy with the day-to-day that we kept putting off the big picture.  Once again the urgent trumped the important.  But it’s not too late!  It’s still the first quarter and you have time to quickly work through the key steps of developing and communicating a strategic plan.

You won’t need special software and you don’t have to build a 400 page manifesto that would satisfy the SEC in your initial public offering.  But you will need to figure out – at a minimum – what will constitute success for your company this year.

Start with a bottom line (after owner pay) of 8-10% of volume.  Step two is to calculate the volume and gross profit that will be needed to achieve that.  Third you will develop the behind-the-scenes plan for how each and every employee and/or department in the company will help make this happen.

Step four is where most companies drop the ball.  They don’t roll out the plan to everyone in the company and get them thinking as owners. This is the most critical component to making it all happen. You must get company-wide buy-in.

So whether you have a well-developed plan in writing or you are scrambling to put one together, here’s a real life case study of how a relatively small remodeling company (2 owners and 4 staff) took advantage of the benefits of planning future by clearly involving staff as well as communicating the plan and monitoring it at regular intervals.

A Real Life Case Study

Robin Burrill and Rob Matthews, spouses who own Curb Appeal Renovations in Ft. Worth, TX, were determined to put the important ahead of the urgent. Since their office manager was leaving and they had a new hire coming in, the owners produced the plan by reviewing their vision, mission, and core values. They also created budgets and projections based on a 25% growth rate through the next few years.  But they wanted to get everyone on board in a fun, memorable, and impactful way because, as Burrill explains, “It’s not just Robin and Rob’s company, it’s everyone’s company.”

They decided to hold an all-day “Summit” to be held in their offices.  This Summit was to accomplish three critical goals – get buy-in on a plan for growth, teach the financial parameters that every employee needed to know, and better develop the participation of staff in meeting challenges and creating solutions.

Robin engaged an outside facilitator so they “could sit back, listen, and observe.”  To find him, she asked around her network of friends and acquaintances for referrals to coaches, and when the same name kept popping up, she knew she had the right person.  The facilitator helped them format the meeting and then conducted it.

They started the meeting by announcing a reward system for participation.  Each employee who participated with an idea or comment was able to draw a poker chip.  They were told that the person with the highest number of chips at the end of the day would receive a prize — but they weren’t told what that prize was.

Then they presented a detailed review of the previous year’s highlights, followed by a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of the company.  They reviewed the Vision, Mission, and Values and how those applied to their work.  Plans for the current year were reviewed in detail.  To teach everyone more about the financial management of a company, they played a budget game by looking at where the money that came in to the company was spent and how little was left at the bottom line in even good years.

What was the outcome?  “It was better than we could possibly have imagined,” says Burrill.  “Everyone thanked us for making them a part of the plan.”  Key goals and suggestions from the Summit are finding their way into every decision.  Curb Appeal will hold quarterly mini-Summits to keep everyone on track.  And next year’s Summit will expand to two days.

Any surprises?  Burrill laughed, “Out of everything, they were most concerned that Rob and I need to take more time away from the business.”  There’s a happy commitment.

Oh, and if you’re wondering about the participation prize, every attendee ended up with between 220 and 360 chips by the end of the day. They were pleasantly surprised when it was revealed that everyone could exchange them for cash — $1 per chip.