I realize it may be hard to develop the discipline to do this planning, what with the holidays and year-end stuff. But it is extremely important to do the planning now in order to “start the year running.” If you don’t do your planning now, you may be a month or more into the New Year before you have decided on your plan. That is just not soon enough to make strategic moves, advertising purchases, etc. to help ensure a successful year.
Our process is to first have a sales meeting with all of those involved in company sales. This includes our sales coordinator, service manager (because many of our leads come from the service techs.), and, of course, all of our salespeople. We review the monthly sales leads and sales through the year, and compare those with previous years. We also review the monthly temperatures for those years to determine what impact those temperatures may have had on sales. (Note: For this information, go to www.weatherunderground.com, enter your zip code, go to history, and then monthly to find a world of information). With this as background, we make semi-intelligent estimates (guesses) as to our monthly sales in the year ahead.
Budget Planning
With this input, we then have our budget planning meeting. For 2013, it is a little different than the last couple of years. In those years we looked at every direct cost and overhead number to see where we could affect savings. This year is going to have to be different because, hopefully like you, we have lowered our overhead number to the very bare minimum. Improvement to our bottom line in the upcoming year is going to have to come in some other ways. Our sales meeting input tells us we will expect greater sales dollars in 2013, if for no other reason than after May 1 we will be installing all 90-percent-plus furnaces. Even on new construction work, this will bring a sizable increase in our per-furnace sale. The key for us — as we stressed in the sales meeting — is to make sure that we maintain or increase our gross profit with these increased sales. In other words, we can’t be giving away the increased cost of the 90-percent furnaces.
During the sales meeting we also determined that our market will be slightly better in the upcoming year resulting in some additional installations. Since we utilized all of our manpower in 2012, increasing installations will require some hiring. We have agreed that in doing that hiring we will employ some of the lower-cost employees available to us within our union contract. We have estimated the amount of improvement in our gross profit that these changes will provide.
There are three areas where a contractor can improve his bottom line profit: increased sales, higher gross profits, and reduced overhead expenses. So, for 2013, we are planning improvements in two of the three: increased sales and improved gross profit.
With all of this information in place, it gives us the framework for planning our budget. We circulate the budget and make sure all of the managers are in agreement with the budget. Then we get into 2013 and start worrying about whether or not the sales will be greater, whether or not the gross profit will be higher, and finally that we are able to maintain our overhead. We are used to it, though, because such is the life of a contractor.
Because of, or in spite of, your worrying, we hope you had a good 2012 and we wish you the best for the New Year.
Publication date: 12/24/2012
