Rolling 12 Forecasts for a Mechanical Contractor

Whenever I talk with my fellow mechanical contractors, the cyclical nature of our business comes up. “Are you busy?” is usually the first topic of conversation. The cycle is very apparent in our annual budget process when trying to forecast the next 12 months’ worth of work. Often, the temptation is to throw the budget out the window after the first quarter because our insight has failed us.

Several years ago, we started doing a final quarter forecast to help create a better year-end plan. Decisions, such as what we are going to owe for taxes and what we are going to spend on capital improvements, were impossible with the information we created 12 months earlier. To update the information, we asked each department to forecast what work they would have in the next 3 months; we also reviewed the job schedule for any potential gains or losses we might experience that would have a significant swing on the financials. The result was astonishing — we were able to forecast within a .5% of our net income, which made our year-end planning much more efficient. After a few years of this fourth quarter activity, we asked ourselves whether we could do this throughout the year. We took a leap of faith, and our 12-month rolling forecast was born!

Like most specialty trade contractors, our business consists of a mix of work. We have large contracts that span multiple months, and we have small day-to-day work at locations where we are the house contractor. To account for this variability, we had to separate our forecast accordingly. We largely end up with three buckets in our forecast:

  • Secured Work: This includes any signed backlog that we have. We ask our Project Managers to forecast the revenue by month so that we can get an accurate picture of what each month’s results will be. It may at first seem intimidating, but it is really just the set up at the beginning of the job, and then each month tweaking what the forecast looks like. Also included in Secured Work would be any Preventative Maintenance Contracts from a service perspective. These are even easier to forecast by month, since they are driven by seasonal activity requirements that create revenue recognition.

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About the Author

Hope Voigt

Hope Voigt, CPA, CCIFP, is COO at Tweet/Garot Mechanical and is responsible for operational performance, developing leaders and teams, and overseeing process development.

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