It’s not uncommon for service businesses to practice bank balance accounting—essentially just looking at how much money they have in the bank to determine whether or not they’re financially healthy. There’s something to be said for that approach, but in the end, it really doesn’t offer an accurate window into your company’s financial health.
Are You Looking at the Right Dashboards?
There are a number of financial dashboards and documents you can use to better assess where your company stands from a monetary perspective. Actually, there are arguably too many dashboards to choose from, and for some entrepreneurs this can be overwhelming.
But just like in your car—which also has a number of gauges—there are really just a handful that you should be reviewing consistently:
- Balance sheets and P&L statements help you determine your overall financial performance;
- Budget versus actual analysis can help you with long-term planning, and it also shows you areas where you’re spending too much; and
- Reports showing your overhead percentage can help you keep your spending in check.
Are you Making a Profit from Your Jobs?
Something else that business owners should ask themselves is how much profit they are making from different jobs—and, which type jobs and services tend to be the most lucrative?
Simply put, knowledge of which services are the biggest money-makers for your company can help you with decisions about marketing, pricing, and more. If you don’t have a clear sense of the profit margins you have for each of your service offerings, that’s something to stop and calculate today.
How is Your Cash Flow?
Cash flow is another critical factor in determining your financial health. Hopefully, your business is consistently bringing in new revenues—and if it’s not, it could be due to any number of problems, such as poor markup of costs and overhead or overrun of actual hours to estimated hours.
Know the formula for covering overruns and non-billable hours in your business. Most pricing models recommend using a 50% non-productive factor. The fewer nonproductive hours, the more profitable a job or service will be.
Are You Generating Cash Profits?
A final question to ask yourself: Are you actually generating cash profits?
If your savings account isn’t growing, then your company isn’t profitable—plain and simple. The solution here is to make sure you’re setting aside profits from each deposit you make, even before you pay off your expenses. That’s what the Profit First accounting system is all about, and it’s something Contractor in Charge is pleased to show you.
In fact, we’re available to help you with any financial health questions that are stumping you; whether you need a skilled accountant or a Profit First coach who can turn your business into a money-maker, reach out to us today to schedule a free consultation.