Financial Plan & Budget
An Owner's Most Important Management Tool
A "budget" is like a roadmap for your finances; it helps you plan how to achieve specific goals. For a construction company, this budget is essential for managing your money effectively.
Example Breakdown:
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Sales: 100%
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Costs of Goods Sold (COGS):
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Materials: 30%
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Labor: 30%
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Other Costs: 10%
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Gross Profit: 70%
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Overhead Costs: 20%
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Net Profit: 10%
It's important to think in percentages rather than dollar amounts. Unlike the government, which can budget however they want, your company needs to rely on the income it actually brings in. Your main goals are to achieve a 70% Gross Profit and 20% Overhead Costs. If you can meet those goals, you'll make a profit.
How Shapcott & Lauber Can Help:
We will help you set these financial targets, develop systems to keep track of them, and encourage everyone in your company to focus on reaching these goals.
Our approach starts with the idea that the owner might not hit these targets. So, we help him/her create a Profit Plan based on the assumption that the owner will only achieve half of what’s expected. This plan outlines how to spend 5% of sales on things like buying new equipment, paying off debt, saving cash, and covering taxes. This way, the business has a clear plan for the next year and can feel confident about reaching these goals since they are based on achieving only half of the expected profit. If the owner does better and reaches the full 10% profit, he/she can take the extra as a bonus without jeopardizing the company’s needs.
For example, if the person responsible for labor costs manages to keep those costs down to 28% instead of 30%, that extra 2% goes towards additional profit. This extra profit is shared: half goes to the employee for their hard work, half to the owner for effective management, and 1% goes back into the company for things like new equipment or paying off debt. This incentive system applies to other key areas of the budget as well.
Finally, the profit plan helps determine how much the company needs to sell just to break even. You can’t even create a sales plan without having a solid budget in place.
Shapcott & Lauber has been helping companies in the construction field implement sound financial budgets and profit plans.
