To Be Successful In 2013 Create a Business Plan And Do An Estimate
For me, when I still owned my remodeling business, getting ready for business growth meant I would first need to do two things; make a plan and create a budget.
Create your plan
First was to create a plan for what I wanted to do and how I would do it. I considered what projects I would specialize in, who I would work for, where I wanted to work, and how I would market my business so the right people would find me. I determined how many employees I would need as the business grew and what skills they would need now and later so I could delegate some of my current responsibilities and include the money needed to do so in my selling prices. After determining the how, I needed to predict how much.
A business budget is kind of like a project estimate
The first budget I created was very simple. By looking at the end of year profit and loss report, the financial history of my business from the previous year, I was able to list the majority of the expense categories I would need to consider to predict the costs of my new plan. For anything I wasn’t sure about, I would call my accountant or another remodeler I knew at my NARI Chapter for advice. Just like a remodeling project estimate, I listed the related expenses and then got current prices for each of them.
The Numbers Game
Creating that first budget for my plan to grow the business seemed very overwhelming. After all, I had never done one before. Looking back, the hardest part about doing it was actually sitting down to do it.
Once I had become clear on the financial definitions and formulas used, the budget actually went together fairly easily. I admit it was very time consuming that first time. However, because I kept notes on how I had determined certain expenses and where I got the information, the second budget I did was a breeze. I did not have to completely recreate or try to remember the entire thought process.
Planning and budgeting assumptions
As a result of living through the experience, I developed four simple assumptions, in addition to keeping notes, which helped organize the way I looked at the process. They should be completed in the following order as well.
- Commit to making a real profit, establish how much, and think of it as an expense that must be paid. You only need a budget if you plan to make a profit.
- Be clear on how you will define and separate direct and indirect costs. Once you identify which is which, recast your current accounting software's account list. This requires moving misplaced accounts and costs to their proper locations as either cost of goods sold or overhead expenses.
- Look at the big picture. Consider your annual budget as just one project, like a whole house project that takes a year to complete. Use your profit and loss report for the previous year as a start to estimate the coming year’s budget. Then start making adjustments for each account to reflect any price changes and or your new plans for the coming year.
- Be sure all of your direct costs will somehow show up in your individual project estimates. Pay particular attention to labor costs, equipment purchases and repair, and general miscellaneous supplies. Make sure the hourly labor cost you use is burdened over and above the wage you pay employees to include all labor-related expenses and benefits. If you own and repair your equipment, and or you use assorted hardware and supplies that do not end up as line items in your estimate, establish a percentage to add to your estimated direct costs so you will cover and include these costs before you add your markup.
Using this simple process year after year, I came to learn how important it was to my business’ success that I planned ahead for what I wanted to accomplish. With a plan in hand, and a budget for what it would cost, I had the confidence and motivation I needed to make success a planned reality. I also had full confidence in asking for the real price I needed to sell each project.
