As a review, we have come up with the revenue for each of the different categories utilizing the different methods in Part 1, Part 2, and Part 3 of this series. For each of the revenue numbers, I am typically utilizing a percentage gross margin for each category. For Flow, I utilize historical numbers of gross margin for that type of work, for backlog and pipeline I utilize the actual per project gross margin percentage. It is dangerous to utilize an average for these categories as the gross margin per project can vary greatly and within a given month a specific project can have a significant amount of weight to your monthly bottom line.
Calculating Other Costs
Now that we know our gross margin, we need to figure out for each month the overhead costs. Each business is set-up differently, so you will need to work closely with your accountant to ensure that nothing is missed out of this formula. The best way to figure out your overhead costs for the upcoming year is to get a monthly breakdown by cost type (i.e. executive salaries, management salaries, fuel, rent, utilities, etc.) for the previous year. Take each of those numbers and come up with a monthly average. I like to compare the monthly average against the low and high for the year, sometimes the average is a typical value for each month, other times the average is not typical and the cost is trending in a specific direction. This analysis will show you trends in your numbers and allow you to pick a good value for 2010.
Under no circumstances should you take a number from 2009 and use it for 2010, without an in depth analysis. As we have learned over the past few years, each year is unique. Figure out what will be different in 2010, what you will do differently, or what new programs you will implement to get a very realistic value for each cost category.
With the overhead value selected for each month, populate your spreadsheet and you should now have a completed plan which will show you the net profit (minus bonuses and taxes) for the company each month. In the last part to this series we will look at how to analyze and possibly modify the plan to optimize our performance over 2010, but until then good luck, happy holidays and Merry Christmas.