It’s always refreshing to turn over a new year. We get a fresh start and a clean slate. These next 12 months should provide interesting clues as to which direction the economy will take and how fast it will move.
If your business is starting 2010 right, you’ve already done your planning for the year. You have updated your business plan, established at least two budgets (a “reasonable but reaching” budget and a less optimistic “fallback” budget), and outlined your marketing for the year. In that very good marketing plan, you’ve listed your main goals or strategies, the tactics that will support those goals, a line-item budget, a calendar of activities, and a good monitoring system. Your plan acknowledges that marketing becomes a very high priority when your referral base alone can no longer support your company.
Got a 2020 Vision?
Planning tips from the consulting trenches:
Shorter horizons. I’m recommending that clients shorten their planning horizon until we have a stronger sense of where the economy is going. However, I have also been asking clients to articulate their vision for 2020 (a vision pun), so that we can aim in that direction. We are not trying to flesh out five- or 10-year plans at this point.
At least two budgets. I’m being very conservative about the remodeling business that my clients should expect in 2010. I ask for at least two budgets: a “reasonable but reaching” budget that figures a 5% to 10% improvement in remodeling volume, and a “fallback” budget that figures a volume similar to 2009.
Obviously, you might have reasons to raise or lower your own expectations, such as a good backlog of work that is signed and ready to start, or, alternatively, a large job in ’09 that you don’t expect to replicate in 2010. If you want to play with more optimistic projections, create as many budgets as you like. Just remember that these two are musts.
Realistic projections and red flags. When I’m working with an optimistic remodeler who has a record of overestimating volume projections, I definitely try to bring them down to earth. Your overhead is predicated by your volume. Therefore, when you overestimate your volume, and then miss the mark, you typically have a losing year.
I’m especially watchful of company owners who also do sales (and this includes most remodeling owners). In my experience, owner-salespeople often paint too bright a picture, to their detriment.
Tough choices. Speaking of overhead, I saw remodeler after remodeler have a losing or break-even 2009 because even as volume failed to meet their projection, they refused to trim overhead. Now that most remodelers have used up their cash cushions, they must ensure that their companies live within their means. This may well mean reducing staff or reducing hours or salaries.
Trigger points. It’s important to remember that budgets are tools. They aren’t static. They aren’t written in concrete. They must be monitored monthly and changes made as needed. If you see that you’ve underestimated volume, overestimated gross profit, or are getting by with fewer staff, rework your budget up or down accordingly.
What to look for? Trigger points — unemotional metrics set within a time frame — that tell you that you need to move to your fallback (or worse) budget. Here are two trigger point examples: “If we haven’t sold 20% of our projected volume by the end of the first quarter, we will make three defined cuts.” “If the big Harris project doesn’t sell by March 1, we will take certain actions.” Pre-think these decision points, and they’ll be easier and less emotional to act on later.
Folks, survival today is all about planning carefully, following the plan, and taking decisive action as needed. That old maxim, “fail to plan and you plan to fail,” has never been more true.
—Linda Case is founder of Remodelers Advantage, a national company that gives remodelers the tools to achieve consistent profitability and success through one-on-one consulting, the Roundtables peer program, and an online learning community, Advantage Associates. 301.490.5620; firstname.lastname@example.org; www.remodelersadvantage.com.