Most construction firms plan next year by looking at last year and adding a bit.
That works until it does not. Turnover in this trade is lumpy. One large job landing in March rather than September, or not landing at all, moves the entire year. A plan drawn as a smooth line through last year’s figures tells you nothing about what happens when the line breaks.
The worse version of the problem is growth without margin. If you cannot say what each type of work actually returns once your overheads are paid for, then chasing turnover loses money faster than standing still did. Firms come to us having doubled in three years with less in the bank than when they started.
The background reading on revenue planning and on profitability planning already sits elsewhere on the site. This page is about building the plan and then holding the year against it.
Why last year plus a bit falls over
The plan starts from history instead of the pipeline. Last year’s turnover is a record of jobs that have finished. It says nothing about what is signed, what is out to tender, and what your strike rate on those tenders has actually been.
Every job is assumed to earn the same margin. It does not. New build, refurbishment, small works and day rate work behave differently, and most firms have one type that quietly carries the others.
Overheads are treated as a background cost. The yard, the office staff, the estimator’s time, insurance and the vans have to be paid for out of gross margin before a penny of profit appears. Until you know what that block costs, a turnover target is a guess.
Work is priced to win rather than to make money. Winning a job at a margin below what your overheads need is a decision to fund somebody else’s project.
Nothing is checked until the accounts arrive. By then the year is closed and the figure is history. A bad year gets discovered nine months after it started.
What is included
- A plan built from your pipeline. Contracts in progress, work won and not yet started, repeat work you can rely on, and tenders out with a realistic conversion rate against them
- A target margin set separately for each type of work you do, based on what those jobs have actually returned rather than what was quoted
- Your true overhead base worked out, including cost sitting in job codes that is really overhead
- The turnover figure you need at your real margin to cover that overhead and leave the profit you want
- A break-even position, so you know the point below which the year stops paying for itself
- A view on which work to chase and which to decline, with the reasoning written down so it survives the next quiet month
- Monthly management figures against the plan, showing where you are ahead and where you are behind while there is still time to act
- A quarterly reforecast when contracts move, because they will
How it works
- First call. We go through your current pipeline and what the last two years actually produced, work type by work type.
- We rebuild the margin history by work type, using job costing where it exists and reconstructing it where it does not.
- We separate overhead from job cost properly, then work out what turnover at your real margin has to cover.
- We come back with a plan for the year, split by work type and phased across the months.
- You decide what to chase. This is where we tell you which work is not worth having.
- Each month you get figures against the plan and a short call on the gaps.
Who this is for
UK construction limited companies turning over between £500,000 and £5 million, particularly firms growing quickly or moving into a new type of work. It suits owners who want a target for the year that means something by June.
It is not for you if you want the plan to say yes to everything. The recommendation here is often to turn work down, and that is the least popular advice we give. Nobody wants to hear that the contract they have chased for four months should be declined at the price it will go for. We will still say it, because the alternative is a busier year that ends with less money in it.
Common questions
Is this the same as a cash flow forecast?
No, and you want both. The plan says what the year should make. The forecast says whether you can fund it week by week.
We do not have job costing. Can you still do this?
Yes, though the first plan is rougher. Margin by work type gets sharper once jobs are costed properly, so the two usually get built together.
How is this different from a budget from our old accountant?
A budget is usually last year’s profit and loss with percentages applied. This starts from contracts and tenders that exist, and it gets updated when they move.
What if we win something huge that was not in the plan?
We re-run it. A large win changes your overhead recovery and your funding position at the same time.
Will you tell us we are pricing too low?
Yes, with the job history to show it. That conversation is most of the value on this page.
Book a call. Bring your pipeline and your last two years of accounts, and we will tell you on the call which of your work types is carrying the rest.
Common questions
What is the difference between profitability planning and job costing?
Job costing tells you what happened on a job that is finished. Profitability planning uses that to decide what work to take next, what to charge for it and what to walk away from. One looks back, the other looks forward, and you need the first to do the second properly.
We are turning over more but keeping less. Why?
Usually one of three things: pricing that has not moved with material and labour costs, growth in a type of work that carries a thinner margin, or overheads that grew with turnover and never came back down. The fix starts with knowing which, and that means job level numbers.