? ROI: Establish this at a level that makes the risk you take acceptable. Obviously, you need to take into consideration some of the unique aspects of running a private business when doing this. ? G&A/Indirect costs: This is probably the biggest drain on profits and also the easiest one to get away from the shareholders. What are your costs? Do you review them to make sure you are operating efficiently? Do you track them versus the budget? Do you budget this at all? ? Gross profit: The gross profit target you set should be at a level that will cover any indirect costs generated while still achieving your required ROI. Is the figure you come up with realistic based on historical profits? ? Revenue: Take into consideration backlog entering the year and then back into how much additional work is needed in order to achieve your gross profit needed -- and ultimately, your ROI. Is this a realistic figure based on cash flow requirements, bonding capacity, management abilities, etc.? If you have the capacity, you may decide to take on more work than necessary. However, don't drop your margin below what you determined is needed to meet your ROI.
Once you have a handle on the above information, you should establish, at the minimum, monthly income statement forecasts as your benchmark. These should be reviewed at least quarterly. Ideally, you should be able to produce a monthly balance sheet, income statement and cash flow forecasts based upon your annual plan. Without forecasting, how are you able to monitor your investment and take any corrective action? Considering the level of risk that you take as a contractor, it is extremely important to monitor your investment and make educated business decisions.