Imagine it’s December 2020, and you’re reviewing the results of your business for the past year and you notice that compared to 2019, your profits are WAY up, AND, you didn’t have to kill yourself to make it happen! How great will that be?!
That’s what’s possible when you operate your business with a plan. Planning for increased profits by creating an operating budget for your business. I don’t just mean a revenue plan (most people have one of those), I mean planning for bottom-line net profits and increased cash flow. In today’s video, I’m going to share with you the tools and steps to employ to help you do just that for your business!
Before I jump in, let me ask you a question. Are you one of those people who thinks that doing budgets for your company is a waste of time? Maybe you feel like you never meet your goals, so why bother. Or maybe you feel like it’s restrictive and limiting, and you want to have freedom and choices about what you do with your money?
It doesn’t have to be that way when budgeting is approached with the right mindset. In fact, it can be the most empowering and liberating thing you’ve ever done for your business! It’s just like preparing an estimate on a project. When you bid a job you:
- Get intentional in figuring out what it’s going to take to complete the work
- You determine what it’s going to costs
- You build in mark-ups to generate a profit
- You figure out how to do the work within a budget
- Then you track your results agains the budget to help you stay on track
It’s just like that when builidng an operating budget for your company, and then tracking your results to make sure it happens.
When you use that same approach to budgeting for your whole business, you can create much more profit for your business, and have cash in the bank when you need it. And just like projects, you have more clarity about that it’s going to take to have it turn out.
Being intentional about planning for profits using an operating budget will give you…
- Money to invest back in your business, which will stimulate growth.
- The ability to offer profit sharing with your employees or offer generous bonuses.
- Cash to pay off debt.
- Cash on hand to accommodate unexpected events or slow receivable payments.
- More money to pay out distributions to YOU
Thinking beyond just revenue, and setting goals for gross profit margin, net profit, and cash reserves, and YOUR paycheck, you begin building a plan for profits that gives you the roadmap for getting from where you are now to where you want to be.
This post and the accompanying video will go in depth on how to set goals for your company and then how to set an operating budget to support those goals. I’m going to walk you through a goal worksheet that’s a great starting point, and then dig into how to develop an operating budget for your business.
It was a huge wakeup call for me when one day I was faced with needing to buy a new set of tires I desperately needed for my car, and no money in the bank or available credit to buy them. The realization set in that my habit of living from paycheck to paycheck was not workable.
The story of, “When I make more money, I’ll have more money,” was a lie. Because every time I got raises and my salary went up, I still never seemed to have any extra money for unexpected expenses.
Being in my mid-20’s at the time, and starting to look at not just surviving, but actually wanting to buy a house some day, I knew something had to change.
It was while channel surfing one Saturday morning that i stumbled upon the Suze Orman Show and her voice blared at me “your problem with not having enough money isn’t really about not making enough money, it has to do with the fact that your not being intentional with how you spend your money.” I immediate stopped changing the chanel, and started to pay close attention.
That wake up call, and her books and courses completely transformed my relationship with money and began to show me the principles of how to always make a great profit and have money in the bank when I want and need it.
My client, Bob, called saying, “I’m a little freaked out, and I need your help.” He continued, “I’ve been working my butt off to get my revenue up, but my bottom line profit is dropping.”
If you’ve ever experienced your revenue increasing, but your bottom line staying flat, or worst yet declining, then you can probably relate to why Bob was freaking out.
Making a consistent profit can be a common problem for many contractors, but it doesn’t have to be your problem.
When things like this happen, I tell clients to start with the data. Numbers always tell a story. So Bob and I sat down together armed the company’s profit and loss reports.
Sure enough, he was right. Revenue was steadily increasing, but the gross profit margin had been falling little by little from 30% a few years ago, to 27%, to 25% this year.
Contractors live and die by gross profit margin, so this decrease was worth a closer look.
If you’re working super hard, but you’re just not seeing the results you want, keep reading . I’ll explain to you why this happens, and then, what you can do to change it. We’re going to talk today about what causes gross profit margins to drop, how to avoid “overhead creep”, and how to price for increased profits.
When my client Joe and I met a while back, he shared with me his recent revelation that has caused him to completely re-think how he bids projects.
It all started while reviewing his financial results (prompted by his concern over a declining bank balance). It didn’t take long for him to see a pattern… his company’s gross profit margin was steadily dropping. Joe knows that construction companies live and die by gross profit margin, which meant he needed to dig deeper. As he did, here are a few things he discovered..
1) Pricing in the estimate for materials was not the price they actually paid. There were two reasons for this:
a. The price paid for materials were not what was in the estimate. It’s easy to let this happen, especially if you do long term projects like Joe’s company, where there’s a lag time in between writing an estimate and placing a purchase order.
b. The quantity of materials purchased was over what was in the estimate. When they were self-performing the work (as opposed to using a subcontractor), the final material take off had far less material than they actually needed as shown in the plans.
2) The estimated hourly cost of labor for different positions was too low. This was only affecting the work that was self-performed. So the work done by subcontractors was profitable, but self-performed jobs were losing money.
In today’s video we’re going to talk about why this type of problem occurs on porjects and in bidding, and what you can do to make sure it never happens to you.
We’ll tackle one of the biggest challenges construction companies face when bidding jobs, and I explain how to always make sure you’re pricing for profit.
This is the second part of a two-part series on succession planning for a contractor, and the process of finding and developing a new leader for a business as the owner nears retirement. If you’re thinking of someday selling a construction company, wondering about the future of your business, or curious about what your retirement could look like, you don’t want to miss today’s interview.
In this video, we’ll discuss what succession planning is, what does it take to sell a business, what has worked really well for my guests, and what would they do differently after going through the succession process.
I’m talking to Tom and Barbara Weiher, the original owners and founders of Carmel Builders in Milwaukee, WI. Carmel Builders successfully transitioned the business from Tom and Barbara to their son, Louis, a few years ago. (You can watch my interview with their son Louis here.)
Tom started the design, build, and remodeling firm 40 years ago. Ten to 15 years ago, he started wondering, “How’s this going to end?” It seemed ideal to him and his wife, Barbara, for one of their five children to take over the business to keep it in the family. But at the time, none of them were working in the business or interested in taking it over.
Today, I’m sharing part one of a two-part series about succession planning. In the contracting industry I see so many folks who have been working for 30 years, 40 years, and beyond, who want to transition out of their businesses but they don’t know where to begin and as a result, continually put it off.
Knowing how to plan for your phase out or complete succession from your business is the pathway to you being able to reap rewards from the hard work the you’ve put into it over these many years. And proper planning, as my guest today will share with you, can help you save money and increase your return as well.
One of the companies that successfully made the transition is Carmel Builders in Milwaukee, WI. Today, my guest is Louis Weiher, the owner and president since 2016. In my next blog post, I’ll interview his parents, Tom and Barbara Weiher, the founders of the 40-year old design build build firm.
Whether you’re on either end of a possible succession or just wondering about your eventual retirement, these two interviews will help you navigate your way to a successful transition.
In this week’s blog, I’m super excited to be joined by Chip Doyle of Sandler Sales. Having successfully trained hundreds of people to be great salespeople, what Chip talks about is a proven approach for effective prospecting that results in closing more sales.
In my interview Chip shared some best practices around sales and prospecting that are simple to implement, and don’t require you to be “salesy.”
“To create fruitful prospecting (i.e. be attracting the RIGHT customers), you need to control the lead source,” Chip shares in this interview.
I especially love when Chip explained how “every opportunity you have to connect with customers and prospects is an opportunity to prospect for more customers, thus an opportunity to close more sales.”
As he sat down across from me, I asked Josh “how have things been going this past month?”
“Last week I submitted the fourth bid to a client who has an incomplete set of plans and is not clear on exactly what they want. This whole thing of helping people figure out what they want to design, and what it will take to build it, while simultaneously asking me to bid and re-bid, and NOT getting paid for it is making us crazy!”
De-Mystifying Online Marketing – And the ONE thing you can easily do create a stronger online presence
If you’re like me, the whole world of online marketing can often feel very confusing and daunting. This week in my interview with my friend and colleague Joleen Emery she de-mystified social media marketing in a really lovely way. In the process, she also helped me understand some key areas where we could improve our “digital footprint” as she calls it (this is explained in the video).
Joleen talked about how to get more people calling us, and how to get our business to show up on the first three pages when someone does a Google search – without paying for ad space!
No cost and no confusion marketing – who doesn’t love that?
When three different clients told me about Robin and his brilliance around making money in scheduling, I knew I needed to interview him for my blog. And I’m so glad I did.
For over 30 years Robin Beauchamp has been increasing profitability on his projects by employing an approach to scheduling that has been key to getting teams to stray focused, subs to show up when needed, clients to make decisions quicker, and design teams to stay on track.
In my interview, Robin shared how he keeps project teams aligned on goals, delivering on promises, and working as a cohesive team. And he does it without having to cajole, threaten or throw anyone under the bus.
Listen to today’s video blog and learn how you can make your projects flow more smoothly, and have your schedule make you more money!