The dictionary defines budget as an itemized summary of probable expenditures and income for a given period. Another much more exciting way to think of a budget is as a plan for how you intend to make net profit.

Profit is so elusive, so easy to wear away or lose altogether that it takes enormous effort to protect your bottom line. A budget is your best line of defense in guarding your profit.

If you want to be able to track and monitor your road to profitability, you'll embrace the balanced budget. You are going to be amazed at just how easy it is to create your own plan for profit.

STEP 1 Start with the Net Profit you want to earn.
Budget for no less than 10% of your annual volume because inevitably, in the course of a year you'll have a few loser jobs. Some materials may get damaged or your computer may blow up--all of which will chip away bits and pieces of your bottom line. So planning for 10% may leave you with a healthy 7-8% at the end of the year.

STEP 2 Next, anticipate your Sales Dollar Volume for next year.
Do you have the manpower, the office support and the leads to do the volume you would like? The volume is not what can be sold but what will be completed in production during the year.

STEP 3 Estimate your Overhead.
Overhead includes all the expenses not reported as direct job costs. This includes rent, utilities, office manager's salary, marketing expenses, legal and accounting fees and more. It's not uncommon for overhead to run to 20-35% of volume in a remodeling company. These operating expenses tend to be stable and very easily estimated based on your past history and the commitments you have made.

With these numbers and a bit more information, you can use a simple budgeting exercise to run a number of scenarios very quickly to see what your markup must be to reach your profit goals. We call it the ProfitFirst System©.

Select a section below to continue. If this is your first time using the ProfitFirst System©, select the introduction before using the interactive worksheet.