Profit 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
- 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.
- 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!