Nine Numbers You Need To Know
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.
1. Know your profit numbers
I conducted a survey of more than 2,500 contractors and discovered less than 40 percent 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.
3. Know your overhead numbers
Making a profit starts with knowing how much money you need to make to cover indirect, fixed cost of doing business or overhead. 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
Track your sales numbers monthly to make sure you are on target to hit your annual sales, overhead and profit goals. 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
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, workers’ compensation, health insurance, vacation, union dues, overtime, small tools, training, pension, profit sharing, and other benefits you provide. 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.
6. Know your contract numbers
Top construction business owners know their contract numbers, including completed and current jobs in progress. You should have a report listing 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. 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
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
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.
George Hedley is a licensed, professional business coach, popular professional speaker and best-selling author of “Get Your Business to Work!” and “The Business Success Blueprint For Contractors,” available at his online bookstore. He works with business owners to build profitable growing companies. Email firstname.lastname@example.org to request your free copy of “Winning Ways To Win More Work!” or sign up for his free monthly e-newsletter. To hire George to speak, be part of his ongoing BIZCOACH program, or join one of his ongoing Roundtable Peer BIZGROUPS, call 800-851-8553 or visit www.HardhatPresentations.com.
George Hedley, HARDHAT Presentations
- 47July 2009 Business Building How Much Profit Is Enough? By George Hedley Construction business owners often ask me how much gross or net profit they should expect to make – 5 percent, 10 percent, 15 percent or more? Most don’t know how much money they should make and don’t have a specific profit target in…
- 47July 2010 Business Building 7 Steps To Business Failure By George Hedley Everything is changing in the business world today. The new reality of too much competition and too little profit has become an ongoing challenge. As you get tossed around on this sea of constant change, the basic business fundamentals remain the same. Here…
- 41October 2012 Business Building Profit Is Overrated By George Hedley Ask 50 construction company owners what a perfect business would be like for them. You’ll likely get 49 different answers. But, one common focus will stand out: Business owners want to create equity and build wealth. Equity and wealth are the outcome of consistently making…
- 35July 2011 Business Building Got Profit? The time to get profit driven is now. By George Hedley What is your top business priority every day? Where do you spend your time? Is it paying attention to details, the provision of customer service, supervising, scheduling crews or subcontractors, ordering materials, pricing jobs or paperwork? To improve…