How many years will you have to work before you can retire? This is a question that every entrepreneur should ask when beginning the journey of starting your new business. Of course there are many things that will enter into the picture as you travel down the competitive road of the business world.
The simple solution is to establish an amount that you think you will need for a comfortable retirement and then work from there.
What percentage can you add into your proposals to be profitable and still be competitive?
How many projects do you need each year to stay in business, to grow and to establish a savings for a retirement fund? Do not fall into the trap of thinking that you can rely on the government to take care of you when you are no longer able to work.
To calculate the number of years that you will have to stay active in your company you need to start at the end and build a system working backwards.
1. Retirement Amount= 2 million =2,000,000.
2. Percentage able to be added to each of the hard costs = .05 or 5%.
3. Yearend target amount for profit = 200,000.
Calculation for number of years to reach retirement goal:
Retirement amount/year end target amount.
2,000,000/200,000 = 10 years to reach goal for retirement.
Calculation to establish total contracts needed to reach $200,000.00:
Yearend profit is equal to percentage figured for your mark up times the total contract amounts.
Calculation is 200,000 divided by percentage of 5% or .05.
200,000/.05 = 4,000,000
It would be great if it were this. Hell! If it were easy everybody would be doing it but I hope this got your attention!
Of course there are wild cards that will enter into the equation in as you move in real life such as the percentages that you can realistically add to the hard costs of each project and still be competitive. Then you also need to consider how hungry the competition is in the bidding process.
The other thing that you must establish for your company is a system that you can rely on to give you accurate figures for your profit margin. My personal thinking is that there are no profits until all the costs (overhead and everything else) are paid for the year! But that’s another story for another time.
Once you establish how much you want for retirement; you can then calculate how much you can save each year and what the total amount of contracts you will need to meet your goal.
The purpose of this exercise is to get you to think about the future and hopefully goad you to do some serious planning on how you intend to approach you business career. Too many young entrepreneurs never give any thought about how fast time goes by and one day they turn around wondering where all the time went!
Here is a short video that should help you .