You’ve created a business plan for the year ahead...
And you’ve factored in the rising price of materials and labour for your cost of sales…
And the effect inflation will have on your fixed expenses throughout the year…
And the impact of the delays that will continue to blow out your timelines and limit the number of jobs you are able to complete in the next 12 months…
So what next?
Once you’re done with all the planning it’s time to execute right?
However, there is one more thing to do before you get started on execution...
I learned this technique from one of my more recent business coaches who, after patiently listening to me outline the business plan I had put together over the previous week, put my head in a spin by asking me one simple question…
He said, “The plan looks good. It's a well thought-out, solid business plan. However, it’s not overly exciting.”
And then he said, “How much do you really want to earn?”
At that moment I realised I’d been sandbagging.
Not fully challenging myself.
I’d been taking the safe option and avoiding failure by setting a low target for myself.
Let’s be honest, it feels good to hit a target.
We Are Capable Of More Than We Realise
And it feels really good to exceed the targets you set for your business.
But when those targets do not fully express what you really want to achieve in your building company it feels like you are just going through the motions.
We are all capable of far more than we realise.
According to David Goggins, author of the best selling book, Can’t Hurt Me, we only tap into 40% of our capabilities.
In his autobiography, Goggins reveals what we are really capable of, even when the odds are stacked against us and we feel both physically and mentally exhausted.
He has proven time and time again that in that moment, we still have so much more left inside us.
We just need to push ourselves.
Which is why, when my coach asked me what I really wanted the company to be making in terms of net profit, I knew that in order to reach the lofty goals I had previously set for myself, the revenue for the year ahead needed to be much higher than I had just budgeted.
So take a look at your own business plan. Does it put you on the path to achieve the goals you have set for yourself?
In my experience, the first draft of a business plan rarely does.
Review, Revise, Optimise
It typically takes numerous revisions to get the net profit, the revenue, or the client count to a level that will enable the business to reach its ultimate goal.
Which means going through the process of reviewing, revising and optimising.
This process is something that has worked incredibly well for our private clients who, after preparing their own business plans for the year ahead, are then challenged on their figures forcing them to review and revise their plans in order to optimise them for maximum growth.
It all starts with the bottom line for the business.
How much net profit do you want to make?
How much net profit do you need to make in the next 12 months in order to put you on the path to achieving your goals?
If it does, then that’s fine. All we need to do is increase the revenue and the related cost of sales and we can generate more net profit for the company.
However, now that we've increased the revenue, we need to take another look at the fixed expenses.
Will they support this new amount of revenue, or will you need to put on more staff or maybe increase your advertising budget?
Most likely you’ll need to do both things, so update the budget for your fixed expenses and then see how the revised figures look.
Of course, what has now happened is that your net profit has once again declined which means you’ll have to once again increase your revenue.
You Cannot Scrimp On Advertising
Although this time it will probably be by a smaller amount which means you can probably achieve it with the same amount of staff.
However, you should still go ahead and increase your advertising budget so that you maintain the same ratio to revenue as before.
Remember, you cannot scrimp on your marketing and advertising!
And increased demand doesn't just result in more sales, it also allows you to increase your margins, so keep an eye on the margins in your budget forecasts as well.
A small increase in your gross margin will mean you need less revenue in order to achieve the same amount of net profit which then allows you to keep your fixed expenses a lot lower.
As you can see, this is not simply a process of updating your figures once and then you're done.
It’s a case of reviewing the result and refining.
Of course, we could simply write formulas for each cost centre in order to short cut this part of the process. But in all honesty, to get those figures completely accurate would take more time to create and maintain than by adjusting the budgets manually.
Just because we can do something doesn't mean we should.
Automation is great, but don’t get sucked into automating tasks that should not be automated.
Once you’ve completed the optimisation process for your net profit, take a look at your salary. Is that a market salary that reflects someone running a company of this size?
Maybe it needs to include some performance bonuses as a reward for the growth you are going to be achieving in the next 12 months.
Once you’ve done that, repeat the previous steps to ensure you are still producing the amount of net profit you were targeting before your salary increase!
Finally, look at the revenue, is this enough to put you on the path to achieve the big goals you’ve set for your company?
At the end of this process, you will have a far greater understanding of your building company.
And you will have a level of confidence about the year ahead that can only come from truly knowing your numbers.
If you’d like to follow the APB step-by-step process for creating a business plan that allows you to actually kick goals, then click on the link below and take a look behind the curtain in order to see the templates and tools we are providing to our members.
This video will reveal how you can generate more quality leads and more sales at higher margins while improving the building experience for your clients.