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Show Me The Money, Please!
Or Getting Answers to Your Money Questions
Every remodeler wants answers to some very simple questions about money in their business.
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Is my company making money? If so, how much? Could I make more?
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Are my finances getting better or worse?
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Will I have enough cash over the next month to handle payroll and my bills?
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Am I getting a good return on the money I've invested in my company?
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How are my job costs running compared to my estimates?
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Are my estimates accurate?
These are simple questions. But they are vital questions for surviving and thriving in this challenging business. Wouldn't you think getting the answers would be just as simple? To the contrary, getting the answers to those questions can take reams of paper and many hours of data gathering each month.
So if you've been thinking that financial reports are for the birds (or the IRS, or your bank), you've been outstandingly incorrect. The main reason your company should generate financial reports is for you - the owner/investor - and for you - the manager. A successful Seattle remodeler advises that each report your company generates should give you the answer to an important question Let's review the five reports that will answer those "simple" questions you have. Every remodeling company owner must have - and be able to analyze - these reports to survive and thrive:
What you need When you need it
1. Profit and Loss Statement monthly
What questions does your P & L answer? This depends on the method
of accounting you use but generally the P & L shows the money
that came in, (or was billed or was earned) and the direct job costs
it took to earn that money. It also shows how much overhead was
incurred during the month and whether any net profit was generated.
2. Balance Sheet monthly
What questions does your Balance Sheet answer? While the P &
L just shows the "score" for the current year, the Balance
Sheet shows the overall tally ever since you've been in business.
That's why your bank and bonding company focus on this important
financial document.
The first category - assets - list what money and valuable things the company owns with the most liquid (convertible to cash) at the top. The second and third categories - liabilities and equity - show who has loaned money that must be paid back and if those loans or receivables are less than the value of the assets, the rest is owner's equity. In theory, if you decided to cash out, sell the assets and pay off debt, the equity would be the remaining cash.
Accountants use all sorts of ratios with various Balance Sheet numbers to show the health (or sickness) of the company. Most entrepreneurs don't know how to read a Balance Sheet. If that is true for you, get a user-friendly book and get educated.
3. Job Costs at least / monthly or timely at the end of each
job
What questions do your Job Cost Reports answer? The lifeblood of
a remodeling company is the ability to project how much a construction
job will cost and actually perform the work for that sum. Job cost
reports tell how we did in the labor, material and subcontractor
categories. They give us clues as to whether we need to tighten
up our estimating or work on field productivity - or both.
4. Cash Flow Projection weekly
What questions does your Cash Flow Projection answer? This invaluable
report shows what money is in the checkbook now, how much is expected
in during the next week or month, and what bills need to be paid.
This projection will give you an early warning if you have a cash
shortfall so you can take action to avert it.
5. Annual Budget annually, realigned quarterly
What questions does your Annual Budget answer? The annual budget
will tell you what volume of work at what markup and resultant gross
profit will cover the overhead you incur -- including your salary
- and give you an 8-10% net profit. It's your roadmap to profitability
over the next year. I have found that careful planning and monitoring
though a budget will add 5% to the bottom line. So what's not to
like about a budget?
Maybe you've been surviving without these reports . Maybe you've even been making money without these reports. Then you're like the pilot who flies without instrumentation but "hasn't crashed yet." What would you advise that pilot to do? I suspect you'd advise the pilot to get state-of-the-art instrumentation to assure his/her continuing safety. One day, without doubt, it will be foggy and overcast and those instruments will be lifesaving.
It's too late after the crash. That's why you want state-of-the-art information - to avoid a business crash.
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Official Charity of 2008
Remodelers Advantage Inc.
535 Main Street, Suite 211
Laurel, MD 20707
ofc: 301-490-5620
fax: 301-498-6869
Info@RemodelersAdvantage.com