Dispatch # 58 - A Broad-stroke Budget for Uncertain Times

Between the pandemic surge and next year being just around the corner, it’s a good time to do some broad-stroke planning. A one-page budget can provide essential guidance, and in a format that’s easily updated when conditions change. Here’s how I’m doing that with a number of contractors right now...

First, we build revenue, setting the top-line target for 2021, beginning with the backlog we’ll bring into the new year. Ideally, we can break down revenue by customer, customer segment, project manager, or type of work.

Gross margin is next. Will it be higher, lower, or the same as this year? Why? We’ll look at labor, materials, and subcontractors.

Overhead is easy to plan for. Will there be any new hires, raises, or staff reductions?  How will office/warehouse, telecomm, insurance, professional fees, etc. change? We’ll factor in borrowing costs, PPP/EIDL impacts, and depreciation.

Now we can calculate bottom-line net income, then layer in the cash flow impact of vehicle and equipment acquisitions, loan payments, taxes, distributions, and A/R.

Revenue, gross margin, bottom-line profit, and cash flow: do the pieces fit together for next year? Are we keeping the long-term business plan alive?

Once final, the plan becomes a monthly reference point, telling us whether or not we’re on course. And if not, it’s a window into where we need to adjust.

Need help with this or other financial matters faced by construction contractors? Let’s talk!

David Stern CFO makes every effort to provide useful and accurate information. This content, however, is not intended as a substitute for specific business-related financial advice. We disclaim all warranties and liabilities from its use.