When was the last time you looked at your financials?
There are many reasons that Tradies don’t prioritise looking at their financials.
What pains me is the looks on their faces when I point out to them how dangerous this is for their business – not having a finger on the pulse can really be damaging.
There are a few things that are truly vital in at least understanding at a basic level in business finance.
Here are 5 tips to think about:
1. Observation of Profit and Loss should focus on bottom line – not top line: that is – so many businesses look at the top line ‘revenue’ – and they see a nice hefty number. But this is not a true indicator of the income of the business – all it tells us is the cash that came into the business before expenses. When I go through this with a business – all of a sudden their heart sinks, because ‘I see all this money coming into the account, I just assume we are doing ok!’ Sorry guys – not necessarily!
2. Watching the bank account isn’t helping: So many people, and businesses, watch the comings and goings, again, thinking as long as there is money hitting that account, things are travelling along ok. But again, this is a reactive way of managing your business, and not a proactive way of managing. Try looking back in time, and understanding more about how you have or have not made profit from month to month, rather than what has hit the bank account.
3. Knowing which jobs make the most profit could be the answer to your cashflow nightmare: Breaking ALL of your lines of work into subsections and calculating the profitability on them will help you decide which work to hold on to, and which work to get rid of. For example: does a bathroom renovation bring in as much profit as an extension from a Net Profit % perspective? Here is where we get some worried looks…..but this stuff is vital to know – it will help you focus on fewer things and make more money.
4. Labour cost vs Revenue: There is a hefty chance that your business is operating with too many staff at not enough productivity. You know you can get onto websites like the ATO to measure how you size up to blokes of similar size to your biz and industry? Go here to find out more. The thing here to understand is – if your team is not operating at capacity – it WILL be costing you money. More on this in the next section – but work out your Labour – Revenue percentage and get it down!
5. Actual cost of employees: This is another killer. Everyone claims they understand the ‘on costs’ of a staff member – but if I had a dollar for every time I heard ‘oh, well, they are about $22 bucks an hour, so round that up to about $28 and that’s about right’ – I would be a much wealthier lady. Throw in a work vehicle, Work Cover, fuel costs, Super, public holidays and sick days, them only working 220 days of the year and all of a sudden, this person is costing you a LOT more than you realise because they are not there all of the time……so, this is where I love working with directors of businesses – the boss man and his lady – to get to the bottom of these numbers when it comes to employees and really understand it properly!
So, if you are not already doing these things, I encourage you to. If you want some support in understanding them more – flick me an email at:
email@example.com – I would love to help you out
Happy dollar counting!