Are You Planning to Make a Profit This Year?
There is a good business in every business; provided it has the right plan, structure, management and accountability in place.
As a plumber, you are fully aware that to complete a job you need labour, materials, tools, time and a job budget. However, to successfully complete a job, you need the correct plumbing and drainage plans for that particularly job site. Likewise, for your plumbing business to be profitable it also needs a plan to work towards.
What is a plan?
At its most basic level, a plan is a budget. It is typically a combination of your target income and expected expenses for the financial year. Most plumbers that I have met claim to have a budget. However, upon closer inspection it is clear the budget closely resembles the actual results from the previous year. They start with setting their invoicing target based on ‘last year plus a little bit’. The end result is that this year looks a lot like last year and the year before and the year before that.
Don’t budget; plan to make a profit instead!
When I get involved in preparing budgets for my clients, my first step is to work with them to determine their annual profit target. This needs to be the ultimate driver of any annual plan. Your profit is not only your reward for all of your physical hard work, but also the late nights, the lack of sleep and the risk that you have taken on.
Once I gain clarity and agreement on what that profit number needs to be, I can start to help them plan to make that profit with a simple question:
“What do my numbers have to look like to achieve that profit?”
This is where the accountant in me comes out. I work with my clients to formulate what their numbers need to look like in order to achieve their profit plan. I analyse all their expenses, from fixed overheads and variable costs, to labour and materials. This then leads us back to what their invoicing target needs to be in order to achieve that profit.
This is just part of the numbers story. There are two other key sets of numbers that need to be considered as part of a strong annual plan – your assets and liabilities and most importantly your cash flow.
A plan that ignores cash flow is a recipe for disaster. I’ve seen plenty of businesses make healthy profits, yet they have no cash to show for it.
What do we have to do to achieve the plan?
It’s all well and good to have a profit plan, but it will mean little if it is not accompanied by a set of actions that will help achieve the plan. What things do you need to stop doing? What do you need to start doing? Do you need to hire key staff? Do you need to implement a new system? Do you need a CRM?
As part of preparing a profit a profit plan for a client, I will help them brainstorm and prioritise what key actions they should be focused on over the next 12 months that will maximize their chances of successfully achieving their plan.
So the plan is now set, and actions determined. Are you keeping a constant eye on it?
I’ll cover off my thoughts on that question next week in my final article in this series.
Cheers – Seb
Sebastian, a Senior Business Consultant with SP Solutions, advises and educates trade based businesses owners on how to grow their business and ultimately their wealth. Specialising in the Plumbing and Electrical trades, Sebastian focuses on the mindset of the business owner by listening, challenging and ultimately changing their way of thinking in order to achieve the best results out of any given situation.