What’s Your #1 Tool for Maximizing Profits?
Over the years of working with remodeling contractors, some simple patterns have become apparent. One remodeler’s strong interest in people leads to success in sales. Another’s love for design produces award-winning projects. Both companies can enjoy a certain level of success and stability over time.
But to develop a larger company complete with beautiful office space, internal staff, and consistent profitability sufficient to develop a nest egg for retirement demands an owner with another attribute – a love of numbers.
Only by digging through job cost reports, understanding financial statements, and developing trend-lines for current concerns can an owner truly understand, protect, and forecast company profitability. Your financial statements are truly your #1 tool for maximizing profits.
Embracing this role is not a task for the faint-hearted; neither can it be delegated in the early stages of company development. The owner must understand certain vital components of the business and measure them continually.
To many whose interests lie elsewhere, the task seems overwhelming. But long-term success rests on determining not just what to measure, but when. Some indicators, such as cash flow, merit weekly tracking, others, such as gross profit margin, are job dependent so are measured throughout the course of a project. Monthly and quarterly tracking suffice for still others, such as accounts receivable and payable turnover ratios.
Certain problems quickly point out where you should put your focus:
- If vendors and subs continue to hound you for payment, then maximizing cash flow should be your number one priority.
- If your produced gross profit margin is always more than 2 or 3 points different from what was estimated (either way), then an in-depth look at estimating and production jumps to the top spot on the priority list.
- When sales are erratic and you complete one job only to wait for the next, marketing–including the analysis of lead flow and closing ratios– bears scrutiny.
Just as the emergency room crew determines which patient to handle first, you must learn to use your financials and other performance metrics to identify which problem should have top priority and then perform ‘triage’ on that area quickly. Triage looks at the current situation, establishes relative importance and operates ‘first on the worst’, then moves on to the next. It’s a never ending cycle that continues the life of your business – just as one variable is stabilized, another takes on greater importance.
The result of this focus on continual improvement is company performance that improves and improves, delivering greater stability, greater profits, and greater results overall. Treat this process with the importance it deserves and you will earn the life you deserve.