Jul 2024 3 Steps to Analysing Your 2024 P&L and Creating the Sales & Profit You Want This Year.
The new financial year has begun, and now is the perfect time to analyse your P&L from the year just finished.
By following my simple steps outlined below, you can analyse your numbers and percentages. Then, use the analysis and forecast the coming year to drive sales and marketing, as well as making changes to the way jobs are managed.
STEP 1:
Analyse Your 2024 P&L
In July each year, I analyse my clients’ P&L from last financial year and check the percentages of Materials costs, Site Wages, Superannuation and Subcontractors costs in relation to Total Income. We are looking for 30% or better Gross Profit.
Now if you operate as a sole trader, your drawings or wage will not appear here (it will be in your Balance Sheet), so add your wage or drawings for the year to either your Site Wages or Expenses (depending whether you are on the tools or not).
I also work out the Expenses Total and compare it to the Income Total. The aim here is for Expenses to be 20% or lower when compared to Total Income.
Lastly, Net Profit should be 10% or higher.
If you find that Gross Profit is lower than the suggested 30% or your expenses are higher than the suggested 20% and your Net Profit is not where you want it, this can be amended.
A full analysis can tell you whether Materials need to have a higher markup or Site Wages need to have a higher charge out rate. A cost-plus system may need to be included on some projects, and better planning and tracking should be tweaked or implemented.
This is the time of year to be making changes to your quoting, implementing better planning, and project management, and revisiting the clients you are choosing to work with. The P&L analysis is the first step to making some powerful changes.
Once you can see what you need to improve when viewing the P&L, you can set up a new forecast for the 2025 financial year.
STEP 2:
Forecast Profit for 2024 (and Use Your Sales Target to Drive Monthly Sales and Profit)
Creating a ‘Profit Forecast’ or ‘Financial Forecast’ is as crucial as reviewing your P&L. I like to set up an Excel spreadsheet and place the past year on one side of the document, and the new financial year on the other. Planning out the new year will help you make clearer financial decisions, because your forecast has allowed for any estimated growth in sales, and additional expenses (like a new employee), and clearly shows what the estimated profit will be by June 30, 2025. In other words, you are planning for your future and eliminating any big surprises. Then, set up monthly Sales and Profit targets so you stay motivated and hit the numbers you want.
STEP 3:
Make the Changes to Your Systems and Planning
Implementing changes to your Quoting markups, charge out rates and project management planning, as well as growing your list of alliances for more sales, will ensure your monthly targets start being realised.
The above 3 steps are a powerful way to ensure you start seeing the financial results you want while relieving the cashflow pressure and earning the income you deserve as a business owner that provides a great service to your clients.