It’s a scary time, but contractors can’t let fear destroy financial success. In the face of ongoing uncertainly caused by the COVID-19 pandemic, it’s more important than ever to proactively engage in strategic business and budget planning.
The pandemic isn’t the first crisis contractors have been forced to deal with over the decades. It certainly won’t be the last. But what we’ve seen is business owners who put together a business plan every year, are better conditioned to quickly navigate through a crisis. They are ready for it.
Know the Flow
During a crisis, it’s very important for contractors to put together budget plans that will move them away from worry or fear into action. One of the base components of a strong strategic business plan is a good cash flow forecast.
Every year we help contractors develop solid revenue forecasts. In March when COVID-19 starting shaking everything up, we helped clients who had already developed solid revenue plans with calculated gross profit margins, put together a series of plans to prepare for the months ahead: Plan A was the budget plan, Plan B was if revenues dropped 30%, and Plan C was if revenues dropped by 80%.
In March when COVID-19 starting shaking everything up, we helped clients who had already developed solid revenue plans with calculated gross profit margins, put together a series of plans to prepare for the months ahead:
After putting together those cash flow projections and worst-case scenarios, business owners were comforted to know that even without relying on any emergency loans or government assistance, they could still be secure if they followed their strategic plans. As soon as the owners saw that, they knew it would be okay and got up and started fighting again.
Changing Times
As with any crisis, there are several phases that businesses are going through with the pandemic. Phase One is simple - fear. In other words - what the heck is going to happen?
Phase Two is realizing the new normal which we’re still setting into. It’s no longer odd to do a virtual visit with customers or use contactless billing.
Phase Three will be business reimagined. There is no-touch everything. You have to work even harder to build customer trust because they are fearful of the virus being brought into their homes. Delivery procedures need to change. The importance of CSRS and scripting, training and incentive programs are all different as well. There are urbanization impacts as people move out of the city and into the suburbs. That is going to change us. There are going to be new competitors in the marketplace as well.
To thrive in the new environment, contractors must focus on service. The service department is the foundation of business success. It is your stronghold and the sail that will get you through the storm. To do this, the service department must produce a profit — 20% net profit — to sufficiently fund the overhead for the entire company. When you hit that point, your company will be safe. To make that happen, contractors will need to put together actionable business and budget plans to get there.
Becoming an Opportunity Manager
Business and budget planning gives business owners the ability to become opportunity managers. This is where they can really look at the health of their businesses and not just work in them during the day-to-day grind. It allows them to step back and ask the important questions
• Where can we better leverage our time?
• What assets can we leverage?
• How do I maximize my opportunities with that particular asset?
Perhaps, the business has an average service ticket of $250. But what happens if you increase that ticket by $50? With all the overhead built into the average service call, any increase of the gross profit now becomes net profit.
Perhaps, the business has an average service ticket of $250. But what happens if you increase that ticket by $50? With all the overhead built into the average service call, any increase of the gross profit now becomes net profit.
This requires taking the metrics from the strategic business plan and making them part of a scorecard to guide decisions on a daily and weekly basis. You don't wait until your quarterly business plan review to know if you’re meeting the numbers required to success. Planning ahead can also can help improve the multiple when the owner finally sells the business. For every dollar of net profit a company made, the business owner can see anywhere from four to eight times increase in their personal net worth.
Planning Ahead
Creating a strategic plan is not only incredibly important during crisis time, but also during the “normal” times when everything seems to be going great. It’s like being a professional athlete. No matter how well you perform during a game, when you’re off the field you are always reviewing your performance and planning ahead. With this kind of budgetary muscle memory in place you can pivot more quickly to fit the changing marketplace. The business planning process allows you to clear the clutter and focus on those items that really matter.
