Kitchen & Bath Design News

AUG 2014

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22 | Kitchen & Bath Design News August 2014 Continued from Page 20 as the equivalent of a foor plan and kitchen remodeling estimate. The more detailed they all are, the greater the likelihood of a successful outcome. So with budgeting, you must (1) conservatively project revenue (based upon the total of substan- tially completed projects), (2) estimate selling and administrative expenses in support of the revenue goal, (3) establish your desired net profit percentage, and (4) reverse engineer (adding items #2 and #3 together) to determine what gross proft percentage must be achieved at that level of revenue to earn enough dollars to "pay for" the overhead (item #2) and net proft (item #3). By planning out the year to its end, you are now armed with the knowledge of what your company's gross profit – in percent- age and dollars – must be to make the net proft you want. And faced with a probable price increase, because you (and virtually every other kitchen dealer) have no doubt been under- valuing your projects for far too long, it gives you the power, the convic- tion and the motivation to make needed changes in your operation. For me, Stanley Blanchard's budget- ing process woke me up to (a) fnding a faster way to get retained on projects and (b) increasing my gross proft margin from 35% to 51.5% so I could earn at least a 10% Pre-Tax Net Proft. As a result, I started tak- ing 10% out of every client check received – the net proft planned in the annual budget – and depositing the funds in our company sav- ings account. And behold, at the end of the year, my income statement typically showed an overall 9-12% pre-tax net proft with the balance sheet listing invest- ment accounts where those profits were parked and earning interest. ➌ 12-Month Cash Flow Forecast . Let's assume you would like to secure a $100,000 credit line to take advantage of all of those cash discounts that can generate 36% returns for you. How do accomplish that? Again, it comes down to concrete planning. The objective is to prove to a bank that you can aford to pay the principal and interest on the credit line for the year. And do it not with words, but the way bankers like it – with num- bers on a spread sheet. So, in this case, you need to push out a 12-month cash flow forecast based upon your annual budget. Take your annual revenue goal and break it down to how much will be sold, and how much will be produced, per month based upon historical percentages of each. Apply your typical payment terms to monthly sales for cash in- fows. Subtract your monthly overhead for cash outfows. Assume how much of a cred- it line you may draw down each month and show the principal and interest as ad- ditional cash outfows, still leaving you with a positive balance in your corporate checking account. It's been my experience that payment terms of 50% upon signed agreement, 40% upon cabinet delivery, and the 10% balance upon substantial completion will, in most cases, show a very positive year-end cash spin- of for your company – even if you have break-even bud- get! Usually, that total is more than enough to pay of the $100,000 credit line. Putting a three-ring binder together that includes your budget, 12-month cash fow forecast, strategic plan and a few other sections has prov- en to make a very positive impression upon bankers to secure your business. THE END IS EVERYTHING In summary, the ending is everything. Plan all the way to it, taking into account all the possible consequences, obstacles and twists of fortune that you may en- counter. By planning to the end you will not be overwhelmed by circum- stances, sidetracked from your strategic plan (which, by the way, is predicated on a written vision of your business when it's all grown up), or forced to make deci- sions on the fy that might prove disastrous later on. Planning to the end will deliver the knowledge to make smart business de- cisions and the power to implement them. Indeed, it's the key reason why I rec- ommend that kitchen/bath design frm owners develop not only an annual budget, but a three-year budget annually. This is time well spent because it gives own- ers much greater visibility and maneuverability to make adjustments in the face of changes and opportunities that may occur because they have thought further out. How much time is needed for owners to prepare that three-year budget? If you set aside four days each fall – 32 hours – you can probably get this valuable planning job done. That's about the same amount of time a typi- cal sales designer needs to orchestrate the budgeting, planning, materials select- ing, estimating, ordering and overseeing of just one $50,000 kitchen project so it fits like a glove. Surely, you can aford an equiva- lent amount of time to plan your $1,000,000 business to be a proftable, sustainable enterprise. After all, if you had a choice, wouldn't you rather guide fortune and help deter- mine the future by thinking far ahead than waiting for things to happen to you? K e n Pe t e r s o n , C K D, LPBC, is president of the Chapel Hill, NC-based SEN Design Group. For more information on three-year budgeting spread sheets, 12-month cash flow fore- casts, or an automated, industry-specific dealer management system for improved productivity and business visibility, please contact Ken Peterson, CKD, at 1-800-991-1711 or kpeterson@sendesign.com. Peterson also welcomes comments, questions or concerns. SIMPLE. SAFE. SECURE. Completely practical, virtually invisible. CounterBalance ® under-counter plates, bars and brackets eliminate the need for fussy, old-fashioned corbels that are a frequent cause of banged knees and bumped toddler heads. Our virtually invisible supports offer a permanent, easily- installed solution that you will appreciate for a lifetime. CounterBalance transforms mundane countertops into stunning focal points! Order online at counterbalanceshop.com (Fabricators Please Order From chemical-concepts.com/counterbalance.html) or call 1.800.220.1966 Visit us at IWF in BOOTH 4945 ISFA Countertop Pavilion | Atlanta, GA Islandbar Circle No. 14 on Product Card Bettering Your Bottom Line { Ken Peterson, CKD, LPBC }

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