Episode•November 20, 2023•35 min

EP141: Year-End Review and Planning for Success in the New Year

I know that budgeting and making estimates might not sound like the most exciting things to talk about, but trust me, they are very important to the success of your business. In this episode, we talked about: The process of creating a fiscal year budget and projection. Importance of planning a budget and projections for business success. Revenue target, gross profit margin target, net profit margin target, expense reduction target, and year-end review. Cashflow management and risk assessment. The importance of monitoring and reporting, financial education and coaching, networking, and celebrating achievements in business. Links to Resources: Get the blueprint to create financial freedom & more free time before burnout or bankruptcy happens. Link to Budgeting and Planning Worksheet A complete Done-With-You Program - Join the Profit Club Join the Free Facebook Group - The Contractor Profit Blueprint Supercharge Your Sales - Sales Accelerator Get Paid for Estimates - Free Sales Guide Plan Your Profits - Profit Journal Help us get the word out to other contractors by leaving us a review or sharing our podcast! Hosted on Acast. See acast.com/privacy for more information.

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Transcript

0:08

Contractor's journey to self-mastery requires discipline, integrity, and respect. Welcome to Hammer and Grind. Hey, welcome back to the Hammer and Grind podcast. On today's episode, we're going to be doing something slightly different. I'm going to actually walk you through the process of creating a fiscal year budget and projection. Okay. Also going to be talking about year-end. reviewing, you know, of the prior of the prior year. So if you're listening to this, you may want to go watch this on YouTube because I have, I'm sharing my screen with this worksheet. Now I'll have a link to this worksheet in the show notes so that you can download it. You may not necessarily have to go watch the video, but if you're watching this on YouTube, you're going to be able to see this in real time, how we kind of go through this. Now, why do we need to Plan out our fiscal year. Why do we need to plan a budget and projections, Brad? That stuff's not fun. It's boring. Who wants to do all that? I get it. I hate it too. I absolutely hate it. But coming into the end of the year, November, December timeframe, depending on when you're listening to this, you need to make sure you have some type of budget in place. Now, if you just started your business, like say three months ago, you're not going to have a ton of data. to be able to really project accurately, but you still need to have something as a goal of where you want to accomplish in your business over the next 12 months. If you're just waking up in the morning and reacting to the day, you're not going to have anything to baseline that against, right? You're not going to know if you're doing well or not. If you just wake up and you make 500 bucks today and you're like, cool, I made 500 bucks. Well, maybe in order to hit your goal, you need to be making a thousand bucks a day. And if you don't understand that, then you need to go out and put all this together so that you know you're coming up short. The whole reason why we do budgets and projections is to have the baseline of where we're at. And also to compare it to previous years, the goal in any business is to increase profits. each year, year after year after year. So we want to increase profits. Well, we don't have any idea where we've been. How in the heck are we going to know where to go? Right? So this is like the roadmap, if you will, of what we're going to do over the next year. Is it guaranteed? No. Can it change drastically? Yes. But it's still starting with something. You can't just wake up and piss in the wind every day and hope that it doesn't get back on you. Right? So. Let's start with this. This worksheet is very basic. This isn't like this, you know, over the top, it's going to fix everything in your business. This is a very basic worksheet. A lot of you use QuickBooks. A lot of you use other software that has budgeting built in. I'd highly recommend that you use that system, whether it's QuickBooks or PM software that has it built in, whatever, whatever you're comfortable with. I recommend using that simply because the data is already going to be in. your program that's going to make it super easy to extrapolate all this information. QuickBooks has a very, very thorough budgeting tool built into it. And if you're not using QuickBooks, that's okay. If you are using QuickBooks, I would recommend that you use their budgeting tool. However, if you don't have any access to any of those tools, that's what this is for. Okay. So let's get into this and I'm going to, I'll talk through this. We're not going to like. do an example of what we're going to talk through this so you can understand it. The first thing that we really want to know is the most important thing is what's our revenue target for the year? If we did $300,000 this year in revenue, what do we want to do next year? Right? What do we want? Do we want to, do we want to try and double that? We want to try and do 600,000. Are we trying to do 1 million? Like what's our goal? And this can be. a combination of things. If you've been in business for three years, you're going to have a track record of a trajectory. Like maybe your first year you did 200, your second year you did 350, your third year you did 500, right? There's a track record of where you're increasing and you can kind of use that as your baseline. Maybe you're about to make some major moves. Maybe you've spent the first few years kind of figuring it out and now you're ready to take some major action and you expect to go from 500 to 1 million, right? Or you expect to go from 300 to 1.5 million, whatever that is, you need to write this down. So what's our revenue target for the year? On top of that, what's our gross profit margin target? So at the end of the year, if we did 50 jobs, where do we want to shoot for in terms of a gross profit margin? It's an example and there's 50%. I talk about that a lot. But maybe you're at 60%. Maybe you're at 70%. What's your gross profit margin target? Again, these are guesstimations. What's your net profit margin target? How much money do you want the company to make? And whether or not you're an extension of the company or you pay yourself a salary and then this is what's actually left over for the company, that's totally up to you depending on your size and what you're trying to accomplish. But what's your net profit margin, i. e. 20%, right? Another thing you can look at is an expense reduction target. Now, my philosophy on business is make a bunch of money so that the expenses really don't matter. That being said, there are opportunities and there is good practices to go in and look at all of your expenses for the year. And make sure you're not paying for stuff that you forgot about. Make sure that you don't have an Audible subscription for $16 a month or $20 a month that you haven't used in over a year. And while that's pennies on the dollar compared to what you're doing, those things do add up. A lot of us sign up for things. We get subscriptions to stuff. Maybe we signed up for ChatGPT at $20 a month six months ago because we thought it was great. And then we never ended up using ChatGPT and we've been getting charged 20 bucks a month, you know, for the last six months and we're not planning on using it. Well, then there's no point in paying for that. So this is also a very good time to audit all of your expenses to make sure you're not paying for things that you don't use or want. It can also be things that maybe you're paying for multiple things and there's a way to reduce that by combining. Maybe you're using three different softwares to accomplish one task and there's a new software that combines all three of those together and it's at a discounted rate. In other words, you're saving, you know, you're going to save a hundred dollars a month by getting this new software. Those are all things you want to look at in your business. The next thing, this is super important. This is not a projection or a budget, but it's rather a reflection or review of your previous year. Because this is the best time to make projections for the future based on changes that we're going to make in our service offerings that's based on the data from this previous year. One of the most powerful things you can do in your business at the end of the year is to look at all of your service offerings or all your products that you sell and break it down by what type of job or service that is, what the total revenue was of that specific thing. what your total expenses were to produce that, and then what the margins were on that. Because here's what happens a lot of times. You start a construction business and you need work. And so you just take on whatever work you can get. And so you do a few roofs a year. You build a few decks per year. You do lots of fences. You do a few bathrooms, but predominantly you're doing fences and decks and you're doing a few other things to help out. Well, what if you go back and look and you realize that fences, which is the main service that you're offering, you only end up with a 35% profit margin, gross profit margin. Well, okay. But what if the decks that you were building, because you just, for whatever reason, it was harder or you thought it took longer or whatever, on the decks that you're building, you're getting a 55% profit margin. Logic would tell us that if I can get a 55% margin on decks and I'm only getting a 35% margin on fences, wouldn't it make more sense to do more decks because I'm getting more profit margin on those items? Well, that depends on how many you're doing. So you look at the total revenue, maybe you did $200,000 worth of fencing and you only did $75,000 worth of decks. Right. So you look at those numbers and see what is my lowest producing service or product that I offer? Which one can I cut out? Now, when you're starting out again, you may be offering seven different services. But if you listen to me for more than a second, you've heard me talk about niching down. So you look at all your services and say, which one can I cut out? Maybe you offer roof for, you know, doing roofs, but you only do two a year. and your profit margins are terrible on it. Well, that's easy. We just cut those out. We don't need to do roofs. If we're only doing a small number and it's only a very tiny percentage of our overall revenue, they're gone. Someone calls you for a roof replacement or roof repair. Sorry, we don't do that anymore. Call so-and-so, right? The goal is to figure out what services and products that we're selling that are going to make us the most margin. and reduce the ones or eliminate the ones that are not producing enough margin or enough revenue, right? It will also help you kind of see like where you're spending most of your time and whatever you're doing the most of, if you don't have SOPs in place or systems, that's a pretty good place to start. Like if you're doing four different services, but ones you're doing, you're doing one service 60% of the time and the other three are make up the other 40. and I don't have any systems in place, I'm starting with the one that I'm doing 60% of the time because that's the majority of my work, right? So you need to review your previous year's performance. Next thing we want to look at is the sales and revenue projections. So obviously if I say I want to do a million dollars a year, I need to break that up into quarters. Quarters are an easy way to see how you're doing throughout the year. Obviously you can break this up into months, weeks, days, hours. But quarters are, you know, your typical way of measuring. A lot of things happen in quarters. So that's generally what the best practice is. So we're going to break it down. Our goal is a million dollars in revenue. But we know in the first part of the year, like January, February, it's wintertime. So we slow down. And in November and December, it's the end of the year. So quarters one and quarters four may be. lower dollar amounts. So it's not going to be $250,000 each quarter times four, right? Your Q1 may only be $100,000 and your Q2 may be $300,000 and Q3 in the summer and towards the end of the fall, that may be your busiest quarter of them all. And that may be $400,000, right? And so, and then December or not December, but Q4 is going to be a little bit less. So again, statistical data is going to allow you to figure out where you need to be. And again, it's a guess, right? Unless you've been doing it for 10 years and you have 10 years worth of data, then you're going to have a much better idea of like where you're at. But this is where you want to plan this out. Okay. The next thing we're going to look at is expense planning. List all the major expenses for the fiscal year. This is including materials, labor, overhead costs, debt repayments, and allocate a budget for each category. So how much do we spend on materials? Well, you can look at it as a percentage. I mean, you can just look at what you did this year and percentage wise, you're going to know if you scale your business by 50%, then in theory, you should scale your materials by 50%, right? So if you did, if your materials budget this year is $250,000, and you think you're going to double your revenue, then your materials would obviously be $500,000, right? Same with labor. You're going to budget that number. Your overhead costs, you're going to budget that number. Any debt repayments that you're going to have if you're going to buy a piece of equipment next year, you know in March you're going to go buy a new dingo or something, you know, a new piece of equipment that you need or a new vehicle. and you're going to plan for that, and you're going to have payments throughout the year, then you need to plan that as well. The next thing is budget allocation. This is where you just basically put budget amounts in the different areas of your business. I left this available to add more categories, but the main ones are going to be marketing, equipment, training, overhead, right? Those are going to be, you don't have to get super detailed here. You don't have to have a budget for how much I want to spend on coaching and a budget for how much I want to spend on travel and how much for office and stamps, you know, equipment. Like you don't need to get that granular. You can if you want, but you don't need to. You really just need to break them down into major categories so you can keep an eye on those things. Now, here's the next thing we're going to get into cash flow management. It's going to be helpful to create a cash flow projection for each month. Right. And you want to be able to track inflows and outflows. And this is going to help you ensure that there's enough liquidity in your business to cover any expenses. So if you get, again, data, previous data is going to be super beneficial here. But if you know in January, February, November, December, that's your slowest months of the year, but you still have to pay $10,000 of cash in expenses each month, then each month you're going to put $10,000 outflow. Right. And then you're going to put the inflow for January because it's going to be slower. It may be less. So here's an example. You know that your overhead is going to cost you $10,000 a month. Right. That's one hundred twenty thousand a year. But in January, you're super slow. So the most you've ever made in January is $5,000. OK, well, you're already $5,000 in the hole. So you would start in that cash balance. If you're starting at zero, like if you have no money in the bank, then you're going $5,000 in the hole for January. But you also know that come, you know, May, June, July, and August, you're averaging $30,000 a month in revenue. And that's going to offset those months that you're in the hole. So it's not this, you know, every month I'm profitable type thing. It's over the course of the year, am I profitable? And that can fluctuate. That can fluctuate daily. It can fluctuate weekly, monthly. It obviously depends on when you're collecting invoices for your jobs, when you're paying things. But if you have a cash flow plan in the beginning and you know that you're going to have a minimum of $10,000 each month in outflow, then you need to make sure you're saving money. This is where I talk about having a three months minimum of operating expenses in your bank. If you know you're spending $10,000 a month, you should have 30 grand sitting in the bank that doesn't get touched. Because January 1, you're already going to go $5,000 in the hole because you know that from previous experience. And so you're going to take 5,000 out of that 30 and pay that down. In February, you're going to go 3,000 in the hole because you only typically make seven grand. And so that's another $3,000 in the hole. And then in March, you kind of break even. And then in April, you're making $2,000 to $3,000 extra. And then that money gets back into your savings, that $30,000 to build that back up. And then by June, you've surpassed the $30,000 and now you got extra money. Hey, just a quick timeout from the show. In the next 30 seconds, I'm going to tell you exactly how you can transform your contracting business.

17:05

Imagine being part of a community of winners where you can find out exactly what they've done to be successful. That's exactly what you get when you join the Profit Club. But it's not just a community. You get lifetime access to all of my course-related material, including all future material that I add. But wait, there's more. Each week, you'll get access to three group coaching calls to talk about sales, marketing, and business problems and answer any questions that you may have. Still not convinced? How about personalized one-on-one coaching to help you overcome your limits? And here's my promise to you. I guarantee you will double your investment within 90 days, or I personally will work with you one-on-one until you do. So don't wait. Elevate your game with The Profit Club today.

17:55

Now let's get back to the show. This is why it's important to manage your cash flow. Looking at your bank account. And seeing that you have $15,000 in there is not managing your cash flow, guys. You can look at any business and see the dips and valleys, the surges and all that stuff in their timing of the year based on when they're the busiest. So don't skip that. The next thing we want to look at is a risk assessment and contingency planning. You know, this is just a good idea to look at where you're at and what's the future, right? If you're in, let's say you're a, let's stick with the deck builder. You're a deck builder and it's November and you just saw or heard that some major franchise deck building franchise is coming to your city and they, they, they're very well known. Well, that's a risk, right? Brand awareness, more, you know, better systems, better processes. They may come in and be able to do the exact same deck as you for 10% less because they have a better system and processes. Is that a risk to your business? The answer should be yes. That could be a risk to your business. What type of contingency plan do I need to put in place? Well, if I know this company is coming in town, I may want to start looking at, if I don't have SOPs, creating that, looking at my business and how I can be more efficient, how I can streamline the process. How can I create more distance between me and this new company in my branding? What can I do to stand out? So you put plans in place, you put a contingency plan. So you do a risk analysis, a risk assessment, sorry, to see where there are any potential risks are. You know, another risk could be less people in the workforce. What if you run 10 people right now and you know for a fact that two of them are leaving? Well, the risk may be that you won't have enough employees. So what can you do as a contingency plan? Maybe you need to increase your recruiting budget. Maybe you need to have a better recruiting plan in place or even have a plan. Maybe you need to consult with an outside company that can put together a recruiting process for you. And that's going to cost you $10,000 to do that. That's a contingency plan. It's also now that we know that. I'm going to have to have a better recruiting process that's going to cost me 10 grand. I need to budget that into my budget, right? I need to add that to my budget. Monitoring and reporting. Monitoring and reporting, this is important. This is like looking at a P &L every month. So your profit and loss statement is a lag metric, right? It's where you've been in the past. Your planning here, this planning that we're doing, that's a prediction. So we're going to predict the future. Our P &L is going to tell us what we did in the past, right, and where we need to go forward. So if you put a monitoring and reporting schedule, you need to set a schedule. Generally, I recommend the first week of the month, you are going to sit down and analyze your P &L from the previous month. And that can be a certain day. So like the first Friday. after the new month, so the first week of the month on a Friday, you're going to review your previous month's P &L. Now, some people look at it weekly. Some people even look at it daily. But whatever it is, you got to review what you're doing in your business. So we plan for January, we're going to do 100 grand in revenue. We're going to have $10,000 in expenses, whatever. How did we perform? February. First week of February, come that Friday, we look at our P &L and it says, January, we did $80,000 in revenue and our expenses were $12,000. Well, right now I know I'm $20,000 short on my goal and I'm $12,000 over in my expenses. What's going on? Right? What happened? Oh, I had to... do a van repair that I wasn't expecting that cost me two grand. Okay. That's an unexpected expense. Maybe in the future, I need to add an extra $200 each month to my overhead budget for automobile repairs because I'm getting my fleets aging and I'm going to have more and more of these. Also, how did I come up $20,000 short on my revenue projections? Well, whatever. You hired a sales team. They sucked. They went out and they lost a bunch of work and you didn't catch it for two weeks. And because of it, it hurt your sales, right? Whatever it may be. Well, now I know that if I want to stay on my projections of a million dollars that year and I'm $20,000 short for January, I have to make up that $20,000 somewhere else. Am I going to make it up in February? Am I going to make it up in March? Am I going to spread it out? Over the rest of the year, I have to make up that 20 grand somewhere if I want to stay on my projections. It also could mean that I need to cut $2,000 out of my budget somewhere else to stay within my budget projections. Right. This is how this works. This is how you're budgeting and your projections work. If you want to stay on your task, you know, your projections, then you have to be analyzing this every. single month, at least every month. You can do it more, but at least every month. And then at the end of the quarter, you're going to do it as well as your monthly. So at the end of month three, you do your monthly P &L and then you go back and do the whole quarter. So you lay out that as the frequency and the dates of when you're going to do those reporting. It's a plan, guys. If you don't plan, if you don't create a plan, then you're planning to fail because there's no plan. No plan is a plan to fail. The next thing is financial education and coaching. Maybe you want to go get a certification. Maybe there's going to be a certification in your trade. It's going to allow you to market yourself as an expert. Maybe you want to get coaching. You finally decide now's the time to talk to Brad and join the profit club because I've been dragging my feet for the last year. The price has gone up. If I wait any longer, I'm going to keep losing money. I'm going to keep doing free estimates, blah, blah, blah, blah. I can keep adding on all these things, by the way. So I'm going to add in there. Hey, I want to go get my certification for my trade. I'm going to join the profit club and I want to get training on disc profiles because I think it's going to be helpful for me to learn different disc profiles when I'm talking to people. Right. And so you write down what continuing education, what certifications or coaching programs that I want to join in the next year. That way you can plan for the expense of those things. The next thing is the networking community support. This is just kind of a ad hoc goal of how you're going to grow your network. So, you know, they always say it's not what you know, it's who you know. That's true. So with a network, we want to try to create more networking opportunities. You don't, you know, I tell a lot of guys, I had a call today. with it with a contractor who's struggling in his business i'm like dude the first thing you need to do is get some sales you need some money in the bank you know you're you're hemorrhaging expenses when you're in desperate mode you people can smell it you reek of desperation the first thing you need to do is get some sales and on the books so that you're not as desperate and the easiest way to do that is to cold call referral sources and make connections. So I always tell people that when I'm talking to them, if you need leads right now, the easiest thing to do is call people. Pick up the phone, call 20,30 people a day, introduce yourself, see if it makes sense to have a conversation, to get to know each other, and see if you can help each other. If you do that and you build your network, then you start getting referrals. And when you tap into some really good realtors, you only need one or two people. It doesn't take a hundred people to be successful. If you can tap into like the top three realtors in your area and they're constantly sending you business, they're going to be high quality, highly vetted referrals that are going to do well for you. You don't need to have 30 different, you know, beginner suck at their job, real estate agents who just need someone to bid on their. They're inspection report jobs, right? That's not what you're looking for. So you build these really strategic relationships with people in your network, in your community that are going to pass you business. And it doesn't take that much, doesn't take that many people to get there to where you're getting a ton of referrals, but you have to make a lot of calls to get to that level. So identify the top three groups and people that you want to connect with this year. Maybe you know the top realtor in your city and you really want to get in with him, but every other contractor in your city is trying to get in with him, right? That's not going to be a direct, I'm going to call the guy today and say, hey, use me as your contractor. It may be a long play. I may have to do an omnipresent approach where I don't directly talk to him, but everywhere he turns, he sees my name, my business. And the guy's like, man, everywhere I turn, I see Brad's construction business. That's crazy. He must be really good at what he does. Maybe I need to talk to this guy. So that's some advanced level stuff, but you can be omnipresent on purpose, right? There's ways to do this. Maybe I'll do a course one day on advanced networking strategies. But for most of you, it's too advanced. Sorry. Like there's ways to literally put yourself in there in front of them, put yourself in front of them on a regular basis so that you're omnipresent so that they just have this sense of like, what is this is crazy. I've seen this company 18 times in the last three days. What's going on here? Right. There's ways to do that. Send me write me a blank check and I'll teach you how to do it. No, I'm just kidding. But there are ways to do that. All right. So, but I want to identify who those people are and that way I can plan out a strategy to get in front of them. And then last thing, this is super, this is like, this is so important, but it's so overlooked for contractors. Guys, make sure you're celebrating your achievements. Make sure you celebrate your achievements. Every time you... You know, sell a job, you should have some kind of celebration. Every time you sell a job, there should be some kind of achievement. Now, I've never told anybody this before, but whenever a new client joins the profit club, I have a little bell here on my desk that I ring. I don't know if you can hear that or not. It's a fancy little bell. I ring that bell and I play a song. It's just a micro celebration. of, hey, we got a new contractor that joined the program, can't wait to make some major changes in their business and really provide some value for them. That's one thing you can celebrate. When you hit milestones, when you hit your quarter milestone revenue goal, you celebrate, right? And make sure that you're planning, like when you hit major milestones, you need to have a major celebration. Like maybe if you do... If you, maybe your revenue for last year was $500,000 and you want to do $750,000 this year. One of your revenue milestones is that when you hit $500,000, in other words, when you surpass last year's revenue go, then you give yourself a bonus, right? You give yourself a $10,000 bonus. You go buy a new toy. You go on a short vacation. Whatever that may be, have these milestones because they're like goals. They're goals for you. If I hit my first quarter's goal, revenue goal, which I know is going to be, I'm going to compare to last year. If I hit my first quarter revenue goal for this year, that means I made an extra $100,000 over last year. Right? And if you got a 20% net, that means you're making an extra 20 grand net in your business. Well, I mean, you can take some of that money and go on vacation. You can take some of that money, give yourself a bonus. For me, My bonuses were buying guns. I was like, hey, I want to buy this new gun, right? I'm going to go buy this new gun. So when I hit my bonus, I mean, when I hit my goals for the month or whatever, I go buy myself a new gun. Make sure you treat yourself because if you're just head down, I'm going to put all my money back into my business. There's no fun in it, right? It starts to remove some of the fun. So put these celebrations of achievement in your plan. So that when you do hit these goals, you take action on these plans. In other words, it's already planned out. So if your goal is when you hit $300,000 in revenue, you're going to take a weekend vacation with your spouse to a bed and breakfast at this one place you always talked about going. That's on the calendar. That's on your goal. And if you use a thermometer, I haven't talked much about this, but. I have a little thermometer that you can print out. You can go online and search for them. It just looks like a thermometer and you, you know, you know what I'm talking about. You fill it out. It gets red and red as it goes up on that thermometer. If your goal is $250,000, you put a little hashtag out to the side, a little line, $250,000. Next to that, you put it in the big bold trip to special place with wife. As soon as you hit that goal. Boom. Automatically we booked the trip. Right. So as I'm looking at this thermometer on my wall and I'm getting closer and closer and closer, it's like, man, I'd really like to book this trip. I'd really like to buy this new bass boat. I really want to buy this new gun. I really want to go on this vacation. I really want to buy a new truck. Right. You see that visually every day. I'm getting closer and closer and closer. to hitting this goal. Maybe I want to work a few extra hours today to try and sell some more jobs. Maybe I want to come in on a Saturday and sell some more jobs. So this is like gamification. When you can gamify your business, and this applies to your employees as well, by the way, figure out ways to gamify your business. And it makes it fun. If one of your employees upsells a job, they get points, they get dollars, whatever. That's how you gamify it. So make sure you're doing this in your planning as well. So guys, that's a whole overview of this budget and projections worksheet. Like I said, you can get that to the, there's a link in the show notes, go download. It's completely free. If you watch this on YouTube, obviously you'll see what I'm talking about while we're going through it. It's pretty self-explanatory, but make sure you're doing your budgeting and planning for next year before the end of the year. Don't wait till February to start planning. Do it now when you're down, you're slow and you got time. All right. A plan keeps you on track. No plan is a plan to fail. You know where to find me on all my social media guys, Instagram, Facebook, TikTok, YouTube, search for the hammer and grind podcast. One more time. I'm going to throw this out. If you guys are interested in having me start another podcast. interviewing other contractors and just having a normal conversation, respond to this, send me a message, comment. I don't care. Somehow get me the, get me the information. Let me know if that's something you would be interested in. Several of you have reached out and let me know that that is something you're interested in, but I'd like to get more feedback. All right. So let me know if that's something you think that would be beneficial to you. And until next time, guys, remember profit is not a dirty word.