This month the Monthly Mission was to calculate your break-even point to see if you are starting the year on solid ground.
The break-even calculation creates some simple revenue goals, basically how much revenue is needed to cover your basic operating costs each month. Think of it as a floor you don’t want to go below. If you are a member of our All Access, you may have even used Shane’s template with the pretty graph to chart different ranges of revenue and expense. This time, though, let’s think about what you can measure or improve to grow the bottom line, increase value or better manage cash. Not just what it takes to cover the minimums.
With the ups and downs of construction on a monthly, sometimes daily, basis it helps to have goals focused on a longer time horizon. This gives your team a way to measure progress and make sure they are moving in the right direction. Plus setting specific, measurable goals for the financial health of your business provides a way for you to make sure you are increasing value and performance for the long haul.
Now for the next steps!
Here are some common goals we see or help track. You can mark the ones that you would like to investigate.
- Goal net income for the year- What is your goal net income for the year? Will you obtain it from sales or savings or a combination of both?
- Reduction in overhead/fixed expenses for cost savings – What if you shave overhead spending for the year? How does that affect net income?
- What if scenarios to increase gross margin (i.e. What if I made 22% gross margin instead of 20%) – What happens if you give your team the task of increasing efficiency or measuring productivity in a specific operation of the business. Set some targets and see what benefits you can achieve.
- Capital investments for replacement or growth- Do you need to add software, construction equipment or vehicles this year? Will those additions significantly change your debt or cash needs?
- Adding employees for growth- What are your plans for adding staff? Are they field or office staff? Will there be added costs while they are trained or onboarded?
- Tax distributions – How much are you planning for income taxes? How does that affect cash flow? How does it affect equity?
- Timing of revenue based on schedules – How does the timing of work affect cash and goal net income? Are there low spots in the schedule you need to plan for?
- Ratio analysis for bank covenants- Will you meet bank covenants at the end of the year? Do you have a significant change in your debt structure that you should monitor for compliance?
- Bonding capacity for growing revenue- Does your bonding capacity fit with your revenue goals? Do you have the working capital and equity for the size of bonding program you require?
- Cash flow analysis for monthly cash management – What will this job/change/customer/growth do to cash flow?
Did you mark the ones you’d like to investigate further? Great! What other ideas did it spur?
Now that you have your list you can detail plan your financial future. You can set up simple metrics to track your goals on a weekly, monthly or even quarterly basis. If you are our client, it is time to start gathering YOUR goals, questions and financial information and prepare for your upcoming planning meeting with Shane using our Atlas Growth Model™. If you’d like some help deciding what to track just reach out to either one of us.