Contractors are an ironic lot. They are bottom-line focused, numbers oriented people who, on the whole, rarely look at the numbers. Well, rarely look at the right numbers anyway.
Small businesses operating outside of the construction industry are almost universally focused on sales volume. Their logic being "If sales are solid, all else must be okay." Due to fixed margins and cost ratios, that logic can hold...for them. "I'll make it up in volume." is a strategy guaranteed to break a contractor. Fortunately, most contractors know better than to fall for that trap.
Contractors are always thinking margin; thinking about it, talking about it, obsessing about it and complaining about it (justifiable so in today's price slashing, everybody's insane bidding environment).
Margin is a good thing to think about. It's a good start. It's not the end. It's not the ONE.
Another number contractors watch closely is their checking account balance. Most use it as their measuring stick for their business' success. That's not a good thing and certainly not the ONE number to watch closely.
What is the ONE?
The ONE would be the number that reflects your business' health. It would be a number whose meaning you knew so well that a quick glance would tell you exactly what you need to do and how urgently you need to react to a negative trend.
Have you boiled your company's performance down to one number? To a number that would tell you whether you had a good week or bad week? To a number that would tell you whether you were making money or not? To a number that you could look at while sitting on a beach and be confident you could safely stay a couple of days longer if your family wished.
Rest assured that ONE number exists and soon we'll show you how to build it for your business. Just not in this article. You need to walk before you run. We need to identify with the numbers that will come together to create the ONE number you need.
Today we're going to show you the data you should be keeping a close eye on. This data can be presented easily and clearly on a one page report, commonly referred to as a Flash Report.
If you listen to your CPA or banker, he (she) is going to tell you to focus on your monthly profit and loss statement (income statement). But, hey, we're business coaches. We approach things a little more seat-of-the-pants than that.
Profit and loss statements are poor predictors of future performance. As such, they cannot give you the depth of information you need to rest easy. Predicting future performance is your Flash Report's role. It does so by showing you how well the drivers of your business' success are progressing. Luckily for you, we have extensive experience with the inner workings of construction companies. We can point out most of the numbers you need on your Flash Report without knowing which type of work you specialize in.
Creating Gross Profit (GP) is your business' most important task and core purpose. GP pays your overhead and generates your wealth. Your Flash Report should show how much gross profit has been produced in the past week and how much has been produced year-to-date. Show actual, budget and variance. Break out revenues and direct costs by materials, labor, equipment and subcontracts.
How big are they? How old are they? How do they compare to a month ago? What percentage of sales are they? These are the numbers to put on your report, broken down by age (30, 60, 90 days).
How big are they? How old are they? What percentage of sales are they? How do they compare to cash on hand? Sound familiar? Put them on your report broken down by age (30, 60, 90 days).