Budgeting and forecasting can seem daunting – but getting your head around your finances will make a huge difference to the success and growth of your business and mean you can get on with your on-site work. We chatted to business expert Alison Warner from Evolve and Grow Coaching, to get her simple three-step guide to help you get your accounting in check.
Step 1: Learn from last year
You should be creating an annual profit and loss report so you can forecast growth targets that are achievable and keep control of your budget for the year. Accounting software like Xero and Quickbooks is useful and makes reporting simple. Start by taking your total annual sales figure from the prior year and set a growth target that you would like to achieve over the next 12 months.
Normally, a 10-50% increase in sales is realistic, depending on how fast your business is growing. You may be busy now, but we all know how quickly things can change. Set a target that is challenging but realistic, based on work you know you’re going to get and those projects which are a safe bet.
If you under-forecast you might fall into the trap of not having enough people to give you a hand when more work comes in. Over-forecast and you’re more likely to end up spending too much.
You can also use your local Jewson as a source of vital information. Every branch employs teams with a deep knowledge about all aspects of the trade while specialist centres focus on things like landscaping and timber. Discussing materials in-branch can give you a valuable insight into material supply chain and costs, making your forecast more accurate.
Step 2 – Think about seasonal trends
The next step is to create a monthly and annual plan, factoring in seasonal changes. Looking at previous years you might see that more jobs get postponed or delayed in the winter, slowing down cash flow. In the summer you might be busier, particularly with outside jobs.
Whatever pattern you find, you then need to plan your budget and outgoings to align with these trends. It’s wise to cut back spending during quieter periods to maintain a regular income and cover fixed outgoings. These include things like regular wages, standard materials, tools, training, maybe an office space and any money you regularly spend on things like marketing and advertising.
Some outgoings may be removed entirely without affecting your business or your quality of work and you can also manage your budget well by having a realistic idea of what quantities of materials you actually need. Creating an annual plan will make discussing favourable trade terms with us much easier as you can demonstrate your pipeline of work in detail based on real-life data.
A great way to forecast accurately is to look at running costs as a percentage of total sales. If you know that materials always cost approximately 35% of a project’s value, you can use this figure to work out how much costs may increase during busy periods.
You can also save costs over the medium and long-term by utilising services like Jewson’s tool hire rather than investing in owning bigger, expensive bits of equipment that require maintenance.
Step 3 – Measure what’s working and spot the problems
Accounting software can also be a great tool for measuring what’s working for your business – and what isn’t. Using the software mentioned above, you can download reports to analyse and compare figures and see if you’re creating realistic forecasts and budgets.
Bringing your forecast into your accounting software makes it easier to see if things have gone off-track or if you are doing better than expected. It’s good practice to re-forecast each quarter using these reports so that you can react to any unexpected changes and adjust spending to stay on track.
There is also software available, such as Fluidly, which automatically produces cash flow forecasts based on the data you input. This can take away the headache of forecasting yourself as it gives you a week-by-week breakdown of expected spend and income. However, your own experience and knowledge of the industry is your most trusted tool for getting this right first time.
By following these three steps, you should be in a good place for the financial year ahead. But we do know that budgets and forecasting aren’t everyone’s cup of tea. So, if you’re struggling it may be worth investing in admin support, financial advice, or an accountant to review your expenses and identify busier and quiet periods, to make sure your predictions are reasonable.
For more tips and business advice, check out our blog on running your own business in the building industry and Alison’s guide to hiring the best, or head over to the Evolve and Grow coaching website.
ABOUT ALISON WARNER
Alison Warner is a specialist business coach, working with construction and trade business owners. By focusing on growing sales, building better client and team relationships, she helps her clients develop more valuable businesses.