A Financial Plan for Your Trade Business

What a financial plan is, and isn't

These get confused constantly, and they're different jobs:

The financial plan sits in the middle, and it's the one most trade businesses skip. Without it, you're running on the bank balance — which tells you what already happened, on a delay, with no view of whether the year as a whole is working. The other two are covered in writing a trade business plan and improving cash flow in a trade business.

Start with last year, not with hope

Every useful number in the plan comes out of what actually happened. Before you set a single target, pull last year's figures:

• What you invoiced, month by month rather than as a total. The shape matters more than the sum.
• What it cost you to deliver — materials, subbies, hire, disposal. That's your variable cost.
• What the business cost to keep open — insurance, vehicle, software, phone, licences, accountant, advertising, premises.
• What you actually drew, as opposed to what you meant to.
• Your average job value and how many jobs you did, which together tell you what a normal month looks like.

If you can't get those out of your records in an afternoon, that's the first thing the plan should fix. Tracking business expenses covers the setup that makes next year's version take twenty minutes.

The four numbers everything comes from

The plan is built up in one direction: from what you need, to what the business has to invoice. Four figures, in this order.

1. What you need to take home. A real number, not a modest one. What the household costs to run, plus what you want to put aside.
2. What the business costs to keep open. Your annual fixed costs, with the annual and quarterly ones included rather than forgotten. Add a buffer — something always comes up.
3. What a job leaves after its own costs. Your contribution margin, as a percentage of job value. This comes from costing finished jobs, not from an estimate. Finding your break-even point covers how to work it out.
4. What the business itself should make. Profit over and above your wage. This is what funds the next vehicle, the reserve and the quiet season — leave it out and every good year gets spent.

Then it's one division. Take a business wanting $110,000 take-home, with $58,000 of other fixed costs, a 50% contribution margin and a $25,000 profit target:

Now make it real. At an average job value of $2,400 that's about 161 jobs, or roughly three and a half a week across a working year. That's a number you can check yourself against on a Friday, which "$386,000" never is.

Turn the year into months, and plan for the lumps

Dividing the annual target by twelve produces a plan you'll fail against every month of the year. Trade work isn't flat: there's a season, a weather pattern and a January where the phone doesn't ring.

1. Split the year using last year's shape. Work out what share of the year's invoicing each month carried, and apply those shares to the new target. Imperfect, and far better than twelve equal months.
2. Name the quiet months out loud. Put the expected dip in the plan rather than being surprised by it. A month you planned to be down is a month you prepared for.
3. Work out what the quiet months cost. Fixed costs plus your drawings, for the months you'll run below target. That total is what the good months have to fund on top of everything else.
4. Schedule the big spends deliberately. Vehicle, plant, a major tool purchase, the website. Put them in specific months, in the plan, ahead of a month you expect to be strong.
5. Diarise the obligations that arrive in lumps. Insurance renewals, registrations, licence renewals, association fees, and whatever periodic obligations apply to your business — your accountant will tell you which ones and when. These wreck more quarters than any of them are individually big enough to justify.

Then decide the reserve. The useful way to size it is in months of fixed costs plus drawings: enough to keep the lights on and yourself paid through a stretch with nothing coming in. How many months depends on how lumpy your work is — a maintenance-heavy business needs less than one living on large project payments.

The quarterly hour that keeps it alive

A plan written in July and next opened the following July is a document. A plan reviewed four times a year is a management tool, and the review is short.

• Actual against plan, for revenue and for costs. Not just the total — which months, and which line items.
• Margin against assumption. If jobs are coming in at a lower contribution than the plan assumed, the revenue target is now too low and everything downstream is wrong.
• What changed in the fixed costs, and whether your charge-out rate still covers them.
• What's coming in the next quarter — the big spends, the renewals, the seasonal dip.
• One decision. Every review should produce at least one thing you'll do differently, or you're just reading numbers.

When you're behind, resist the instinct to cut price to win volume. Dropping your price cuts contribution while fixed costs stay put, which raises the amount of work you need — usually by more than the discount wins. Winning back a shortfall almost always comes from quoting faster, chasing money harder and billing the variations you've been letting through.

Frequently asked questions