Anna Turner helps sort a 2024 plan of action.
Set yourself up for a profitable 2024 by working through this checklist. This list will give a clear picture of how your business is currently tracking and set you up to hit your profit margin next year.
Plan cashflow over the season
You should’ve prepped your business for the craziness of December and the lull in January. Invoice as much as you can leading up to Christmas, and chase your clients to ensure they won’t forget to pay in January when everyone is on holidays (remember, they’ll be hard to contact then). Ask them to send a remittance showing the payment has been scheduled. Forecast your expected income over December, January and February to ensure you have enough coming in to cover what’s going out.
Communicate with clients
Before you shut down for between two and four weeks, let your clients know your plans. That way they won’t get frustrated when the guys don’t turn up to work on January 2, or you don’t answer your phone on the first ring. And make sure to put an auto reply on your emails. You need a break too, and your clients will understand that, you just need to communicate to them what you’re doing.
Send an email to all your clients wishing them a fab silly season, accompanied by a little pic of your own family to remind them you’ve got one too!
Review your profit margin
It’s a good idea to review your profit margin at least twice a year – I suggest January and July. Compare your gross and net profit margins against the profit margins you were aiming for. You can work out your gross profit margin on any project by using this formula:
Your net profit is your gross profit less your overheads, and an accountant should be able to determine what percentage of your turnover goes on overheads. This percentage is very important. You can’t set your gross profit margin without knowing it.
Look back on past projects to see your gross profit margin. Did you meet your margin, exceed it, or fall short? Next, review your overheads as a percentage of turnover. Knowing these figures allows adjusting markups for the coming six months. You need to adjust markups to cover overheads and make the net profit you’re aiming at.
Review your costs and profit!
You need to review overheads to ensure you have a clear understanding of these costs. Not allowing for them in the cost of a project could mean you’re working for free.
In January and July, it’s also important to update material, labour, plant and subcontractor costs. Post-Covid I was updating these prices every four to eight weeks, but things have settled down a little now, so we can probably pull that back to three to six months.
The way I check material prices is to check the price of a product when I’m next using it in a quote. If the supplier tells me the price has increased I then ask them for the current prices on all the materials I use regularly. If the supplier says the price hasn’t changed I’ll always check one or two other products, but if nothing has changed I can assume all the prices from that supplier have stayed the same (I do also ask them directly). I do this for all suppliers and subbies over a two- to fourweek period until I am happy my database is up to date.
Making the price checking relevant to a quote motivates me to update my database more regularly and makes the task far less daunting.
Review your processes
This is another huge task best done in smaller chunks on a regular basis.
The best thing to do is set up a schedule and stick to it. Aim to review the big procedures every six months and the smaller ones every year. If you can, assign the ownership of procedures to senior colleagues (ideally colleagues who are directly affected by that procedure) who are then responsible for keeping it up to date. Don’t assign the procedures to admin staff who have noting to do with it on a day-to-day basis.
Reviewing procedures will help identify what’s working and what needs to be changed. They’re not set in stone; they’re designed to evolve over time with your business. The reviewing process should help you identify where your business can be more efficient, improving the working environment and profitability at the same time.
If possible, make the time in January to set yourself up for a cracking 2024. Putting the work in now to understand your costs and profit margin, along with updating your processes, will give you the best chance for meeting your 2024 targets.