Editor’s note: This column is the second in a three-part series focusing on planning. Today’s column is about developing a business plan.

Why does your business exist? What is different about it? Why will potential clients want to work with your company instead of others?

A mission statement is the answer. Take time developing this. Solicit the input of other people, such as your significant other, employees, clients, trade contractors, and vendors. A good mission statement is one of the points of reference for making day-to-day decisions in the company. It is best if it can be remembered easily, so keep it concise.

Don’t rush the process. And once you’ve had a mission statement for several years, re-examine it to make sure it is still on point. Your business changes over time, so the mission statement will have to as well.

When we first started out our business, our mission statement was something like “We do exceptional remodeling work for smart people who trust us and will pay us.” Not too sophisticated, but it was on point. Ultimately, for the public we used something which was almost more of a motto: “Beautiful work, with care since 1978.”

In the company, we used something similar: “Beautiful work, with care, on time, and on budget.” Let’s break down what that meant to us.

• “Beautiful work” meant the lead carpenter had done what was in the scope of work and the client thought the work was wonderful. It did not mean that we would relentlessly strive for a level of perfection that was unachievable and would put us out of business. This mean that I had to keep my tendency to “improve” the project at the expense of profit in check.
• “With care” meant that we did well all things people take for granted, such as communicating proactively, keeping the job site clean and orderly, and respecting the neighbors’ concerns and property. These are among the only things clients actually know, as they don’t really know “quality” when it comes to the entire remodeling project. By paying attention to these “soft” things, we gave our clients good stories to tell.
• “On time” was very important to us. If the project took longer than planned, we would lose money and the client would not be happy with us.
• “On budget” was essential to the continued existence of the company. It comes after “on time” because if the project was on time, it was more likely to be on budget.

Core values help to break down the mission statement into bite-sized bits. Five to seven core values are enough. More than that is too distracting. Input from your employees is essential if you want them to buy into all the above. Don’t create these items, come down from the mountain and deliver them on a couple pieces of stone.

At a couple points in the life of our company, we all (Nina, our employees, and I) read “The 7 Habits of Highly Effective People” by Stephen Covey. We read about 50 pages at a time. Every two weeks, we would meet. We met for one hour, consisting of 30 minutes of paid time and 30 minutes of unpaid time, which we regarded as personal development time for all of us. We would have pizza delivered towards the end of the meeting.

Nina and I were careful to focus the discussion on how the employees’ personal lives were being changed by the readings, not how their work lives were being altered. Inevitably, at least one employee would bring up some work-related matter that the reading had made them think of and how it could have been handled more effectively.

After completing the book, we would spend a couple of meetings considering revisions to the company missions statement and core values. Nina and I would take in all that was offered. We had reserved the right to make the final decisions on what would be modified. A draft would be produced and distributed for review and comment.

If it made sense to us, we might modify the draft per some of the comments we had received. Finally, the revised documents would be put into use. One of the novel ways we used these was to post them at the job desk we had on any job over three weeks long. The idea was to make public all we worked with, and for what we thought we were about.

On one occasion, a building inspector noticed the documents. He read them carefully, commented on how he had never seen a company put these on a job site, and then signed the inspection card without walking the site any further!

Here are some questions you can ask yourself to get clearer about your relationship to your business:

• How much annual salary do you expect/want the company to be paying you?
• How much net profit do you plan on the company generating so that, among other things, you will be able to bonus yourself?
• What jobs/tasks do you want to be doing in your business? What do you not want to be doing?
• How many hours a week do you want to be working? How many do you not want to be working?

Simply thinking about the answers to these questions will help you “remodel” (or create) your business budget and plan to serve your needs better. By the way, if you don’t focus on making sure your needs are served well by your business, no one else will.

Without getting clear about the answers to these questions, your business will be running you. Working too many hours, never home, children growing up, charging too little just to keep employees busy, and working for the wrong clients are some of the outcomes you may experience.

Your business is supposed to be a tool that helps you achieve your personal goals, while providing you with a sense of purpose and achievement every day to work in it.

Here are some simple steps to help with crafting a business model:

• Your annual salary: Make sure you are being realistic so you and your family don’t find money running out before the end of the year. Remember that your annual salary is part of the company’s overhead.
• The remaining overhead: These are all the costs involved in running the business, even if the business has no work. Office staff, stationary, communication devices, computers, desk(s), and office space of some kind are some of these costs.
• Your targeted new profit: Net profit is the return a company is supposed to generate. Imagine your were thinking of companies to invest in. Would you invest in a company that generated no net profit? Would you buy stock in such a company? No. That is why you need to budget for net profit for your company. Planning on making net profit also helps when the company is challenged by circumstances, such as a client who does not pay their bills on a project that was underestimated. Count on things like this to occur early in the life of your business.
• Your gross profit: Gross profit is the sum of your annual salary, the remaining overhead, and your targeted net profit.
• Your gross profit percentage: How much can you sell your projects for? How much gross profit can you add to the cost of goods sold (labor, materials, and trade contractor costs that get invested in a project) and still get the job? This is a tough one. Most people, like I was, are scared to charge enough gross profit. The higher percentage of gross profit you can charge and sell your project at, the less work you have to do to earn the gross profit dollars you determined you need. What skills are needed to sell at a high gross profit? Sales skills, not construction skills. I learned this, like so many things, the hard way at the School of Hard Knocks, paying a lot of tuition by losing money over and over. Only by charging a higher and higher gross profit percentage and being able to sell prospective clients that we were the best remodeler to work with were we able to achieve our personal goals.
• Your annual sales volume goal: To get this number do the following: Divide your gross profit dollar goal by the gross profit percentage you can sell at.

Here is an example:

Your Annual Salary: $100,000

The Remaining Overhead: $200,000
Added together you get:
The Company’s Gross Profit in Dollars: $300,000
Your Company’s Gross Profit Percentage: 33%
This is what many remodeling consultants feel is a professional gross profit percentage. If a company is charging less, they will likely not survive those first five early years in the life of the business.

• The Company’s Sales/Revenue Goal: To determine this, divide the gross profit in dollars ($300,000), by the gross profit percentage (33%) – which is 0.33 of the sales price of a project.
• $300,000/0.33 = $900,000 as the sales/revenue goal for the year. (Note: A 33% gross profit can also be created by multiplying the costs of good sold by a markup of 1.50).

Nailing these numbers down was the basis for our business planning as we ran our business over time. With these in hand, we could set some goals for number of jobs of certain types/sizes we would aim to sell and produce for the year, driven by what we were looking to earn.

Honestly, I hated doing this early in the life of our business. I thought it was better for me to be out banging nails and building things. This is why having a partner of some sort (spouse, key employee, or the like) whose strengths can include getting a plan laid out and helping the crazy entrepreneur slow down and pay attention to the future, not just the present.