“Plans are of little importance, but planning is essential.”
Intelligent business decisions come from proper planning. Nevertheless, widespread avoidance of this essential discipline is holding back the kitchen and bath industry from spectacular growth. The smart way for kitchen and bath firm owners to realize their annual revenue and net profit goals is to plan for them as carefully as they would for a client’s kitchen remodeling project.
Plan with the future in mind
A seasoned business advisor once told SEN founder Ken Peterson CKD:
“You are a fine salesperson, but you will never be wealthy until you become as fine a businessperson. And that starts with good planning because planning gives you the knowledge to make smart decisions. Smart decisions give you the power to grow your top and bottom lines. Wealth comes from earning a bigger bottom line each succeeding year. It’s as simple as that.”
Our ultimate goals are complex by nature, weaving our professional and personal lives together. Each day should be lived by keeping our highest achievable goals in mind. From this simple prompt, we can determine what is most valuable to us and what can be in service to us to achieve that end.
- Character– Who do you want to be?
- Contributions and achievements– What do you want to do?
- Principles– Determine the values upon which these answers are based.
Things you can do to raise your bottom line
Take cash discounts
Push your numbers out to understand the actual value of a cash discount. With typical cabinet vendor payment terms of “2%, ten days – net 30,” project what that 2% cash discount means within the context of an annualized return on investment (ROI). The equation is simple:
2% x 360 Business days/Period of investment (30 – 10 (20 days)) = 36% ROI
36% ROI! Think about it, when was the last time any of your investments delivered a 36% yield? By contrast, you would be fortunate today if your savings account is generating even 1% in interest.
Most owners don’t pay attention to 2% cash discounts because they look at their checking accounts and think it’s inconvenient to pay cabinet vendors quickly.
However, owners would serve themselves by taking the initiative to organize a healthy credit line. Even with a low cash reserve, or a reluctance to dip into your retained earnings, owners can take these generous terms by organizing a credit line that will give them the funds needed to pay vendors within the 10-day opportunity, so they can receive that 2% discount. Vendor cash discounts add up, contributing significantly toward generating wealth. On $500,000 in annual cabinet purchases, you could be directly adding $10,000 to your company’s net worth.
Budget three years out
The best way to realize your annual revenue and net profit goals is to plan for it as carefully as you would for a client’s kitchen project.
- Conservatively estimate the revenue earned based upon the total of substantially completed projects.
- Estimate the selling and administrative expenses in support of the revenue goal.
- Establish your desired net profit percentage.
Then, by adding numbers two and three together, you will determine the gross profit dollars (and percentage of revenue) necessary at that income level to achieve your twin goals.
That same business advisor opened Peterson’s eyes to find a faster way to get retained on projects. Through interactive client project budgeting and then proper annual business budgeting, his gross profit margin increased virtually overnight from 35% to 51.5%. As a result, Peterson could consistently earn at least a 10% pre-tax net profit.
Create a twelve-month cash flow forecast
Let’s assume you would like to secure a $200,000 credit line to take advantage of those cash discounts that can generate 36% in returns.
You must prove to a bank how you’ll pay the principal and interest on a credit line for the year. Based upon your completed annual budget, do it with a cash flow spreadsheet so the bank can see your numbers pushed out over twelve months.
If you’re not already using it, show your cash flow forecast with the following system for securing job payments: 50% upon signing the agreement, 40% upon cabinet arrival, and the final 10% upon substantial completion. Banks want to see order, planning, proof, and accountability before agreeing to a credit line.
Embrace a transparent budgeting process
Budget projects with your prospects’ needs in mind. Invite candidates into the budgeting process and interactively prepare theirs with them. We know from experience that not only will your sales designers get retained faster, but your clients will gladly pay up to 40% more for their remodeling projects.
Owners can now implement project budgeting software that uses the Good-Better-Best selling strategy in their business, enabling all of your staff to quickly become adept at leveraging the platform for maximum sales results.
The future is everything
Planning for the future creates a support structure to help guide you in your business decisions. When you properly prepare for your firm’s future, you will see those benefits pay off by the end of every year. And incrementally, you will see your wealth increase year after year.
Planning the future is integral to business tactics taught at SEN University. Accelerate your business growth by signing up for one of our valued online education courses or attending one of our in-person schools.
—SEN Leadership Team