Before we conduct our mid-year review, let me tell you what I’ve seen around the country these last six months. I’ve been in the offices of more than 50 green industry contractors in 30-plus states preparing budgets, checking pricing, setting goals, etc. Virtually every contractor told me their leads and sales have significantly increased over the trend of the past five years. Their biggest problem? The same as your biggest problem – labor! There just isn’t enough skilled labor available to do the work that’s on the books.
The mid-year review.
Here are the things I do for my clients when I visit at mid-year and what you should be looking for and at.
1. Profit and loss (P&L) statement: You should review your P&L both on a cash and an accrual basis. The cash report will tell you how you are doing cash-wise. However, it books cash only when you either receive it or pay it. It does not reflect accounts receivable balances or bills that you haven’t paid (accounts payable). The accrual report is much more useful for telling you if you are profitable because it books payables and receivables upon receipt of a bill or upon submission of an invoice to a client. You should review three things:
a. Sales and revenues: Check to see if your income is on target for each division. If not, investigate to determine why you’re falling short. Find out if it’s a sales or a production problem.
b. Bottom line net profit or loss: More than likely, you are running at a net loss at this time of year. For those who had a huge snow season, it may look very profitable. But your bottom line looks nice and fat because of the weather and not because of your brilliant business acumen.
c. Gross profit margin: Next, add your net profit margin (NPM) to your general and administrative (G&A) overhead expenses. This will give you your gross profit margin (GPM). Do not include expenses for field vehicles and equipment in G&A overhead. That’s a direct cost. Your GPM is an important calculation as it will tell you when you have reached your break-even point (BEP). When you have accumulated enough GPM on your P&L, you have reached your BEP.
2. Job cost reports: Next, you should review your job cost reports for all of your jobs. You should primarily look to see if the actual man-hours used match the man-hours budgeted. Actually, you and your managers should have been doing this all along. These reports will tell you if individual install projects and/or maintenance accounts are on budget. It’s the report card for your field team and managers.
3. Team weaknesses: Once you review these reports, you should have a pretty good idea how your field crews, managers and sales staff are performing. If you are off target, make adjustments as needed.
We’ve been looking in the rearview mirror, but now it is time to look ahead.
1. Bid board report: This will tell you what’s in the pipeline. Do you have enough work in the pipeline to reach your budgeted sales goal for the year? If not, change your strategy, if possible, so that you can reach your goals.
2. BEP: Identify and project when you should reach your BEP for the year. Once your accumulated GPM equals your general and administrative overhead costs for the year, you’ve hit it. This should occur in September plus or minus one month.
3. 2016 preliminary budget: Once the previous items are reviewed, you should put together a preliminary budget for the upcoming year. I like my clients to briefly think about the upcoming year and put it in the back of their minds. Putting together the 2016 budget helps put the current year in perspective. It’s also nice to know that going into the fall and early winter you’ve already started the planning process for the upcoming year.
4. Plan to finish strong: Once you’ve conducted your mid-year review, plan for you and your staff to take some time off in August. Then come back refreshed with a clear plan of action to finish the year as strong as possible. End-of-year work is your most important work because it determines your year-end profitability.