YOU NEED BUDGETS. This is the time of year when your accountant should be telling you how well you have done this year and suggesting changes to your budgeting process for next year.
It doesn’t matter whether you are a recently laid off or fired journeyman contemplating starting a business to “show them all,” or whether you have 50 trucks on the street — you need a budget for the year 2003 and every year thereafter. The jury is not out on this. If you’re going to be in business, the least you owe yourself, your family, your employees and your bank is a budget.
All these years you’ve thought that “budget” was a dirty word, and here I am dogmatically declaring that you need one. All those times when you explored getting a business loan and the banker asked to see your budget and your business plan and you thought this was a brushoff because he didn’t like your looks, and here I am telling you that you need a budget whether you want a loan or not!
There is absolutely no other way you can be in control of your business than to have a budget. The reason for the budget is to lay out your projected costs of doing business — your “nut” or break-even point — and thereby lay the foundation for building your pricing structure for tomorrow and into the future. This is how you generate the cash flow needed to make your business profitable.
You lay out your projected fixed and variable costs and your planned hours of labor based on the people generating billing hours. You project the materials you will be selling and the gross profit levels you expect on those sales, and you thus know how much you must charge to break even and how much more you must charge to make a decent profit.
I previously recommended readers do the numbers themselves. I’ve changed my mind. I am convinced your time is better spent as the “rainmaker” than working the numbers. If your accountant doesn’t know how to do this, find a new accountant.
The local banker you should be trying to impress will be shocked into incoherent rapture if you ask for his suggestions on finding good, reasonably priced accounting assistance! If you do not find an accountant with prior experience in contracting, you are condemned to pay for either a steep learning curve or perhaps downright incompetence, neither of which you can afford.
If you read the papers, you are well aware of the inconvenience and downright misery bad accounting advice can bring to your life. The bright side is that good accounting advice is almost always one of the biggest bargains in the new budget that I suggest you develop.
If you are one of those poor souls who, because of low price or pity, has a bad family member doing your accounting, your best future planning might be for a business auction.
Previously I might have suggested you learn to do good accounting yourself, but I have taken a more realistic view of your needs and skills. Here is Joe Schmitt’s new solution. Give the problem to the accounting expert you have found.
Tell this person you need a clear picture of your fixed expenses and the profits you must generate to cover both the fixed and variable expenses. Explain you need to understand how much and in what manner you can control those expenses.
You next need to have your accountant develop, with your help, a realistic idea of how many billing hours your workforce can generate in a day, a week, a month and a year.
This knowledge becomes power and, as “rainmaker,” you can methodically set about the business of developing the flow of business that makes this whole caper pay off.
I do not care how big you are, how many people work for you or how much of a line of credit you have been able to get with your wholesalers. If you lack this clear understanding — and if you are unwilling to chase, create and deliver those billable hours and to collect the money owed you in a quick and orderly manner so that your cash flow is there when you need it — you will find yourself in deep doodoo.
Contractors have many financial pressures. It is no compliment when your general contractor or your customer tries to use you instead of commercial short-term construction financing. Even more sinister are those debtors who, sensing you are vulnerable, force you into bankruptcy and thus avoid paying you ever.
This has been all about control. Control of your business. Control of the money you have earned. Control of your destiny.
There will be some of you who will be greatly energized by the clear understanding of what you must do to be outrageously successful in contracting. There are others who I hope I have convinced to pick up the tools again and hook up with someone who has a budget and a plan and who is now outrageously successful.