Nine Numbers You Need To Know!
Are you in business to make a profit? If so, how much profit do you make? Like most business owners, I bet you don’t know! This tells me you don’t focus on what really counts: your numbers. You spend time bidding, ordering materials, scheduling crews, and hoping the bottom-line works out. Plus, you don’t like to be bothered with numbers and pass them off to a bookkeeper (or spouse) to manage and worry about.
It seems as if business owners hope hard work will eventually make them some money. But the odds they hit a jackpot, win the lottery, or inherit a fortune to create profits, are better than continuing to run their businesses the way they do. It takes focus on nine necessary numbers to keep you headed in the right direction. The following is a list of numbers you must know, track and review on an ongoing weekly and monthly basis, even if you hate numbers!
1. Know your profit numbers!
Are you hitting your profit goals or do you even know what your target is for the year? I conducted a survey of over 2,500 contractors and discovered less than 40% had specific written net profit targets. Every year, sit down with your management team and decide how much gross and net profit you want to make in actual dollars, not percentages. To determine the specific profit number you want to hit, look at your equity and projected overhead for the year. Then look at the risk you take to operate your business, and decide how much profit you want to make based on the return you want to make.
2. Know your equity numbers!
Equity or net worth is the actual value of your company or the sum of your total assets minus your total liabilities. It’s found on the bottom of your balance sheet or financial statement. Every business owner’s top priority is to grow the net worth of their company. If your company doesn’t grow in equity, it can’t go out and do more work, increase bonding capacity, or grow. Do you know what your company is worth?
3. Know your overhead numbers!
Making a profit starts with knowing how much money you need to make to cover your indirect fixed cost of doing business or overhead. Only 30% of contractors actually know what their annual overhead costs are to keep their company open! At the beginning of every year calculate your annual overhead expenses you anticipate spending to operate your company. Then track it every month to make sure your actual expenses do not exceed your budget.
4. Know your sales numbers!
Only 23% of construction company owners know or track their monthly and annual sales revenue goals. Do you? Track your sales numbers monthly to make sure you are on target to hit your annual sales, overhead and profit goals. Unfortunately, only the top contractors set specific overhead, profit, and sales targets for the year and then track their progress. As a result, only the top contractors can make necessary adjustments to their estimating and bidding strategy, customer selection, project management and field operations as the need arises.
5. Know your job cost numbers!
Before you can bid a job, you’ve got to know exactly what it will cost to build. In addition, not knowing accurate labor and equipment costs creates inaccurate bids. Sit down with your accounting manager to get an accurate cost for every employee and piece of equipment you own. For labor, include all taxes, insurance, worker’s compensation, health insurance, vacation, union dues, overtime, small tools, training, pension, profit sharing, and other benefits you provide. For equipment, include the purchase cost, finance and interest, payments, insurance, maintenance, tires, gas, and repairs. Next you must have an accounting system software to track your actual job costs by cost code or work task. From these printouts, you can verify the numbers to use for estimating new projects. If you don’t know what it costs to build, it’s next to impossible to make money!
6. Know your contract numbers!
Top construction business owners know their contract numbers including completed and current jobs in progress. This will show how well you did on past jobs and how well you’re doing on current jobs. You should have a report listing out all completed and current projects including: Job Name, Start Date, Project Manager, Superintendent, Foreman, Contract Amount, Estimated Final Cost, Bid Mark-Up, Actual Final Markup, Variance, Costs To Date, Percent Complete, Profit To Date, Amount Earned To Date, Amount Billed, Estimate Cost To Complete, and Contract Balance.
7. Know your receivable numbers!
You can’t make money unless you collect what you’re owed. Doing work is fun, but putting money in the bank is even more fun! I know it isn’t your favorite job to call deadbeat customers and ask for money. Stay focused on collecting what’s owed by getting an updated weekly accounts receivable aging report to review showing all of your outstanding invoices and due dates.
8. Know your liability numbers!
To keep your eye on the ball, you’ve got to know your outstanding liabilities and debt. Create a report listing out all of your debts, liabilities and balloon or one time payments due in the near future. Don’t forget to include your: Line of Credit, Other Credit Loans, Equipment Loans, Future Tax Payments, or Real Estate Loans.
9. Know your cash numbers!
Cash is king and the life-blood of your business in order to make good decisions. Get a report of your cash position every week and include the following: Bank Deposits, Cash In Bank Accounts, Weekly Payroll Cost, Weekly Equipment Cost, Weekly Overhead Costs, and Investments.
Doing great work doesn’t really matter unless you make it your priority to always make a profit. Don’t delegate or ignore the most important part of your business. Follow these nine necessary numbers and stay on track towards becoming one of the top contractors in your market. To get started knowing your numbers, email GH@HardhatPresentations.com to get your copy of ‘Profit 101 For Contractors!’ Every week take at least one hour to review these financial figures with your key management team and accounting manager. This small investment of time will give you a much better return than going out to the jobsite to remind your foreman what to do.