At the beginning of each new year, along with my annual goals and business plan, I review my firm’s financials. I look at where we’ve been over the past 12 months and I prepare a projection to plan for the year ahead.
Several years ago, I developed a Google Docs spreadsheet to calculate my projections. No bells. No whistles. No fancy accountant jargon. The spreadsheet is simple. It includes a section to calculate our total cash in, based on projected fees and a section to determine our total cash out, based on payroll and annual expenses.
I subtract the expenses from the income and the calculator tells me if I’ll be profitable… at a very basic level. It’s a great tool. It’s the first thing I do each year before updating my business plan.
The Cost of Doing Business
I use this tool to quickly understand what I need to do in the coming year to hit the targets I seek. There’s much more to success than simple income and expense, but it’s a great place to start. Understanding how many projects I will need to sign and the fees that each project will generate informs my marketing plan and gives me the information I need to set my financial goals for the new year.
At the beginning of each new year I update the calculator with data collected from the year before. I update the expenses, providing actual numbers from my books and compiling any new expenses that may have been added since last year.
Then I update our salaries and all our payroll expenses. If I plan on growing (or shrinking), I include the projected amounts for those changes as well.
With the expenses totaled up, I now know how much income I will need to generate to be profitable in the coming year.
Setting Income Projections
Then I move on to calculate how we will generate that required income.
I determine my desired profit margin using our profit planning process. Then I set a target for the number of new projects and the expected construction costs for each. This will provide me with the data required to determine the income generated by our architectural fees.
I then add any income projected from additional services and consulting.
With all this data loaded into the calculator, I can look at the bottom line and see if we will hit our profit margin targets in the coming year. If not, I go back to the project list and adjust it as necessary. I increase the number of new projects or adjust expected construction costs until the bottom line meets my requirements for a profitable year.
Remember… its a projection. Its up to you to set your goals and adjust the numbers to meet your requirements.
The Mid-Year Checkup
Half way through the year, as we enter this third quarter, its time to take a look at how we’re doing. Have we hit our targets? Have we signed the number of projects we expected? Are construction costs where we wanted them in order for our fees to produce the income required to meet our financial goals?
If not, we have enough time remaining in the year to ramp up our efforts to land new work… or re-evaluate our original projection and adjust it as necessary.
Using a simple financial projection calculator is a great way to set our targets and periodically check in to evaluate our progress.
Question: Do you use a simple projection calculator?
Want a copy of my Google Docs spreadsheet? Click the orange button below to request a link to download a copy for free.
Very generous of you Mark, thank you.
You are welcome Elrond. Let me know if there are other resources you would like to see offered here. I’d like to do this more often.
What does the OFI stand for? I couldnt find that anywhere on the blog and was wondering. I looks like if you are doing purchasing, collecting a mark up for the procurement? Fixtures / materials / furniture?
OFI is an internal term we use for Owner Furnished Items. As an additional service, our clients may hire us to select things like fixtures and finishes. We receive a percentage of the cost of the items we select as compensation.
Excellent – Thank you!