Jul 2023 Financial Strategies to Boost Sales and Profits
STEP 1:
Analyse Your 2023 P&L
At this time of year, I analyse my clients’ P&L from last year and check the critical percentages of materials costs, site wages, superannuation, and subcontractors costs. In other words, I see if their gross profit is what it should be. Similarly, we will check the maintenance and design costs, as well as the running expenses of the company.
If you do this and find material costs are 10% higher than the benchmark, you may need to increase the mark-up on hardscape and softscape material costs, and look to see where mistakes on jobs might have increased suppliers’ costs, or where jobs took longer. To fix such a problem, you may need to improve the planning of the jobs, the communication to your crew, or implement checking the work on site each day.
If design wages and superannuation costs are too high in relation to sales, start checking how long jobs take to design, and then compare that number to the quoted time allowed. Perhaps mark-ups should be increased.
Once you can see what you need to improve when viewing the P&L, you can set up a new forecast for the 2024 financial year.
STEP 2:
Forecast Profit for 2024 (And Use Your Sales Target to Drive Monthly Sales and Profit)
Creating a ‘Profit 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, 2024. In other words, you are planning for your future and eliminating any big surprises. Monthly sales and profit targets are a great way to manage growth while staying motivated.
Some costs like vehicle or equipment repayments and business loans won’t appear in this report and will instead appear in your balance sheet. Add them to this forecast as well.
If you haven’t created a forecast, and need some help, your bookkeeper, business coach, or accountant can assist with this. You can also set one up yourself using Xero.
STEP 3:
Review the P&L Each Month and Use Your Monthly Target to Drive Sales
By reviewing your P&L Statement each month, you will see what income (or sales) your business has earned, what expenses were incurred, and how much gross and net profit you are making, or losing. A P&L statement will reveal if the income received is covering monthly costs, and allowing for profit. I know it can be confusing when some months show no profit because you have paid large material costs, and clients haven’t paid their invoices yet, but it balances out over 2 or 3 months, so don’t be concerned.
Cashflow Forecast
If you feel you need to view your cash flow balance every week or two, then a cash flow forecast could be just the report to help you. Most accounting software has a simple function that allows you to view each week in order to help remind you when to delay paying some bills, and when to remind clients what they owe you.
Big Purchases – Do You Really Need Them Now?
Whatever you are contemplating purchasing, it is always worth doing a calculation to see what it will really cost you, and if, for example, hiring the equipment may be a better option at the time.
Once you know your numbers from the last year, have created your forecast for this year, and used the targeted amounts to keep you focused on running your business efficiently, you will achieve what you expected, and more. Knowing and managing your numbers provides satisfying relief and confidence within your business.