Wednesday, February 28, 2024
Plan for costs (Image: Rich Earth Landscaping)
Business File

Financial strategies to boost sales and profits

By John Corban

The beginning of the new financial year has begun, so now is the perfect time to analyse your Profit & Loss (P&L) from the year just finished. Then, create a forecast knowing what areas of quoting, projects, project management and maintenance, and retail you need to improve. You can then use the analysis and forecast to drive sales, marketing, and greater efficiency each month. Here is a summary of the process you can follow.

Step 1: Analyse your 2023 P&L

About this time of year I analyse my client’s P&L from last year and check the critical percentages of materials costs, site wages, superannuation, and subcontractor costs. In other words, I see if their gross profit is what it should be. I do the same with running expenses.

If you find material costs are 10% higher than the benchmark, you may need to increase the mark-up on hardscapes and softscape material costs, and look to see where mistakes on jobs might have increased suppliers’ costs. To fix such a problem, you may need to improve the planning of the jobs, the communication to crews, and checking the work on site each day.

Once you can see what you need to improve by viewing the P&L, set up a new forecast for the 2024 financial year.

Step 2: Forecast Profit for 2024 – use your sales target to drive monthly sales and profit

Creating a profit forecast is as crucial as reviewing your P&L. I like to place the past year in an Excel spreadsheet on the left, and on the right side of the sheet, set up the 2024 year. Planning the new year will help you make clearer financial decisions because your forecast has allowed for any estimated growth in sales and additional expenses (like a new employee), and shows what the estimated profit will be on June 30, 2024. In other words, you are planning for your future and eliminating the big surprises.

Monthly sales and profit targets are a great way to keep managing growth and stay motivated.

Some costs, like vehicle or equipment repayments and business loans, won’t appear in this report and will appear in your balance sheet, so a quick look at your balance sheet will show those amounts.

Step 3: Review P&L each month and use your monthly target to drive sales

By reviewing your P&L statement each month you will see what income (or sales) your business earned, what expenses were incurred, and how much real profit you are making or losing. A P&L statement will reveal if the income received is covering monthly costs and leaving a profit. I know it can be confusing when some months show no profit because you have paid large supplies costs and clients haven’t paid their invoices yet, but it balances out over two months, so don’t be concerned.

When you know your numbers from last year, create a forecast for this year and use the targeted amounts to keep you focused on running your business efficiently. You will achieve what you expected, and better. Knowing and managing your numbers provides a satisfying relief and confidence.

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