Contractor Corner

As the owner of a home service trade business, it’s imperative that you pay yourself a salary. To some, this might seem incredibly obvious; after all, if you’re not getting paid, what’s the point of having a business? More to the point, you simply can’t live without generating an income for yourself. A business in which the owner doesn’t get paid is not sustainable in the long run—yet we encounter many service trades where the owners don’t take a salary, for any number of reasons.

As you consider your owner’s salary, here are just a few important points to keep in mind.

Owner’s Pay and Profit are Not the Same Thing

Every time you make a bank deposit, you should be setting aside some money as profit. (You can learn more about this through our Profit First coaching services.) It’s critical to understand that this profit is not your salary. Profits are the return on the investment that the owner or stockholder receives after costs and expenses. Your owner’s pay should be separate.

Owners Should Be Paid an Hourly Wage for Their Work on the Job

Even as the owner of the company, you may be in a position where you’re still working jobs—whether that means actually being present at a work site, alongside your technicians, or even just driving materials and supplies to technicians in the field. This may not happen every day, but on the days when you do work on jobs, pay yourself an hourly wage. This is part of the job cost, and should be factored into your job pricing.

Owners Should Also Get a Regular Salary for Owning the Company

In addition to these hourly wages, you should be paid a regular salary for being the owner of the company. Again, this isn’t something you take out of your profits; it’s an overhead expense. But at the end of the day, you’re the one who’s taken the financial risk by starting this business, and you’re the one who’s ultimately accountable for it. You should be compensated accordingly.

This may seem like a simple idea—owners getting paid for their commitment—but actually, it’s something that has a major impact on the way you run your business. Your hourly wages should be factored into job costs, while your salary should be taken into account when calculating the overhead.

Again, this is important for keeping your business afloat in the long run—because companies where the owner doesn’t get paid simply don’t last. For guidance in figuring out how to pay yourself properly, we’d encourage you to contact our accountants and coaches. Reach out to Contractor in Charge to schedule a consultation.

Profitability isn’t something that just happens to your business on accident; rather, it’s something you achieve through the right financial habits, practiced day in and day out. If your home service trade business isn’t generating profits, then it’s wise to take a step back and review some of your company’s practices. Adopting the right habits isn’t always easy, but it can set you on the path to profitability.

Give the Right Estimates

One way to ensure a profit is to price your services correctly. As we’ve discussed in a previous blog, many service trades fail to understand that markup and profit are not the same thing, and that when giving a quote for any project, you need to factor in both overhead and the money you’ll set aside as profit.

A related problem that companies run into is that they simply price their jobs too low, hoping that their cheap prices will help them land work. If you’re having a hard time getting customers, that’s fundamentally a marketing problem; underpricing your services means you’ll never make a profit, even if you do win jobs, so that’s a dead end.

Work with Good Numbers

Something else you should do, routinely, is ensure you’re working with good numbers. Figure out your mark-up/gross margin, then never adjust that number to lower the sales price. Again, lowering prices just to be competitive is a losing game.

If you adjust that mark-up number, you’re definitely going to lose some of your profits, maybe even all your profits. You’ll also lose some of the money you need for overhead expenses—and of course, those expenses will still need to be paid, whether you lower your prices or not.

Set Aside Profit First

A final habit that all home service trades should be in is putting aside money for profit—before doing anything else. This, of course, is what the Profit First system is all about, and we’d love to walk you through the specifics.

For now, we’ll just say this: If you don’t intentionally safeguard profit, from every bank deposit you make, your business probably won’t grow. That’s because you’ll use everything you make to pay your expenses, market your business, etc. Hoping for “leftover” profit is never effective. There won’t be any leftovers unless you make leftovers, and that means putting profit first.

These are just a few examples of how setting the right financial habits can make your home service trade more profitable. To see how your habits stack up, and to unlock new ways to generate profit within your business, speak with one of our accountants/Profit First professionals.

We’d love to set up a free consultation. Call Contractor in Charge to start the process now!

Home service trade businesses fail for many different reasons—and often, there are warning signs present early on.

It’s important for business owners to be alert to these red flags. If you identify them early, it’s possible to make the necessary course corrections and keep your business from going under; in fact, by partnering with the right accountant, you can actually turn your struggling business into a major profit generator!

But, if these warning signs are ignored, your business could find itself in deeper and deeper financial peril.

Warning Signs That Your Business is Failing

So what are these warning signs, exactly? Eight of the most common indicators that your home service trade business is in a bad place include:

  1. You (or your spouse) are working on jobs for free. If you’re working for no pay, there’s a job cost that’s not being met—plain and simple. And this could be something as simple as delivering materials or supplies to a job site. All job costs need to be accounted for!
  2. You’re not taking a regular salary. Ultimately, you started your business to make money—and if you’re not paying yourself, that’s a major warning sign that something’s wrong with the business. A successful business pays its employees, and that includes you!
  3. You cut your sales prices just to get a job. This could point to many underlying issues, including a lack of proper marketing. Ultimately, cutting prices means you’re missing out on revenues. You cannot grow or even sustain your company without revenues.
  4. You can’t keep up with credit card debt. When your business is financially healthy, it’s able to chip away at old credit card debt each month. An inability to do so points to some deeper problems with your business.
  5. You’re only making partial payments on the bills that are due. Or, you’re not paying your bills at all. Again, healthy companies can pay what they owe. If you allow debts and unpaid bills to mount, that’s a problem that’s only going to grow.
  6. You’re paying old bills with money from new jobs. Is your business essentially surviving paycheck-to-paycheck? In other words, are you desperate to get paid so that you can settle outstanding debts? If that’s the shape your company is in, then it’s probably not setting aside any profits or savings, which means it’s not growing. If anything, it’s sinking.
  7. You’re not paying your employees on time. It goes without saying that, if you don’t pay your employees promptly and fully, you’re going to have some major personnel issues on your hands. Plus, it won’t be long before word gets out that your company is in a bad place financially—which could destroy the brand you’ve built for yourself.
  8. Your checks bounce. The ultimate sign that your business is failing? You can’t be sure that the checks you write are going to clear. If your business reaches this stage, it may be too late to save it.

These warning signs are all pretty dire—but for the most part, if you identify them early and take the right action, you can not only right the ship, but turn your money-gobbling business into a real profit generator.

It all starts with seeking the right assistance. Contractor in Charge can help. Our accountants and Profit First professionals can look at your books, identify where you’re going wrong, and provide you with an action plan to make your business successful. If you’re seeing any of these warning signs, you can’t afford to delay. Contact us now and set up a free consultation!

There are a lot of misconceptions about accountants—what they do, and what benefits they provide. To a lot of people, accountants are the people who check the general ledger, fill out tax return documents, do complex bookkeeping, and ensure basic financial health.

Certainly, those are all encompassed within the accountant’s role—but if you think accountants exist merely to do paperwork and keep your records in shape, think again. Actually, accountants have the skills to go through your financial statements transaction by transaction, identifying hidden profit centers within your company—highlighting ways to start generating more cash from your business, whether by tweaking your prices or by eliminating unnecessary overhead.

The Benefits of Outsourced Accountants

There are a number of specific benefits you can expect when you hire an accountant to take a look at your financials—among them:

  • Cost savings. A good accountant will have the skills necessary to discover areas where you’re overspending, helping you eliminate some unnecessary costs from running your company.
  • Time savings. Likewise, accountants can help free up your time by taking some of the repetitive administrative tasks off your plate—freeing you to focus on the things that really bring value.
  • Growth opportunities. Are there areas where your business is poised for major profit increases? A good accountant can help you identify these opportunities, and strategically exploit them.

The Right Skills for the Job

More than anything else, though, a qualified business accountant has the right skills to make your business more profitable. Just as you’ve trained hard to become an expert in plumbing, electrical work, remodeling, or HVAC repair, an accountant has financial expertise to help generate cash profits on your company’s behalf.

Do you have the same skills? Are you able to do what accountants do, and locate hidden opportunities for increased profitability? There are some easy ways to check. We recommend doing a quick online skills assessment to see how sharp your accounting skills really are. SkillCheck is the platform we use for our own pre-employment testing, and they offer a number of accounting tests you can try in order to get a fair self-appraisal.

Accounting Help from Contractor in Charge

If you take a skills test and find that maybe you’re not as well-versed in accounting as you could be, that’s no reason to panic. You can hire an accountant who will help you find those hidden profit centers in your business. In fact, that’s one of the main services we offer at Contractor in Charge.

Our accountants:

  • All have a minimum of a Bachelor’s degree in Accounting;
  • All have a minimum of five years’ accounting experience;
  • Are skilled not just in QuickBooks, but in all accounting systems;
  • Are all in-house, salaried employees of Contractor in Charge.

We’d love to sit down with you, look through your books, and help identify a clear strategy to make your business more profitable. Contact Contractor in Charge to schedule a consultation!

Imagine this scenario: A homeowner hires your company to do a job, and you quote them a price—roughly $1,000 when all is said and done. The homeowner agrees, and you begin your work.

As you get into it, though, you realize that the scope of the project is far bigger than you first anticipated. Surprises come up, and costs spiral out of control. You approach the homeowner and admit that the project has changed; now, you say, you’ll need to charge $2,000 to cover those “surprises.”

The homeowner is likely to respond in one of two ways. It’s possible that he or she will be furious that you so badly misjudged the project. Or it’s possible that the homeowner will grudgingly agree, acknowledging that, in home improvement, these things “just happen”

Neither of these scenarios is actually all that positive. While it’s true that surprises can happen, you never want to so badly underestimate the cost of a job. Ideally, you always want your customers to feel like you steered them straight and made good on your promises.

What Causes On-the-Job Surprises?

The question is, how can you avoid these unwelcome scenarios?

While you certainly can’t prevent on-the-job surprises, you can prepare for them a little better. To do so, understand what causes those unanticipated spikes in price.

The first cause is that you simply didn’t price the job right in the first place. This often happens when you are trying to make your price as low as possible in order to close the sale; if you trim your margins and don’t leave any room for error, however, you’re not going to generate any profit from the job—and should anything unexpected arise, you may very well wind up having to go back to the homeowner and increase your price.

The second reason why you might run into problems is that your estimator didn’t fully think things through—didn’t go over every step of the process and every possible contingency before offering a quote. To provide a reasonable estimate, it’s important to be thorough, and to entertain all possible outcomes.

It’s All About Pricing

As is so often the case, it all comes back to pricing. Service trade professionals shouldn’t be afraid to price their jobs to ensure profitability—no matter the nature of the project.

One solution that more and more contractors and service professionals are embracing is flat-rate pricing—wherein you offer the client a fixed price that accounts for any potential “surprises,” rather than an open-ended price that hinges on the time and materials used. A vast majority of homeowners say they prefer the fixed approach because it removes any fear of a last-minute spike in their bill. It also shifts the perceived risk from the homeowner to the contractor, and allows you to come across as more up-front, more trustworthy, and more authoritative.

The bottom line? With smart pricing, you can keep yourself out of scenarios where you have to change your estimate at the last minute; and, you can prevent your clients from stressing out as the repair time lengthens.

That’s something our team can coach you through. Contractor in Charge helps service trade entrepreneurs to price smartly and ensure they are making profits. We’d love to consult with you today, and to show you the untapped potential in your own business. Reach out to Contractor in Charge to learn more!

As Profit First professionals, one of the things we’re most passionate about is sitting down with business owners, looking at their financials, and helping them discover effective strategies for realizing real profits. One thing we’ve noticed is that a number of our clients have questions about one specific area of profitability—that is, pricing.

It all boils down to a fairly simple question: Are you charging the right amount for your services? You obviously don’t want to charge so much that you lose all your business to more-affordable competitors, but neither do you want to charge so little that you’re missing out on high profit margins.

Markup and Profit

And all too often, the calculations involved here are oversimplified. Here’s an example. You decide that you want to make $25 on a particular service offering. It costs you $100 to provide the service, so you charge your customers $125 for it—easy enough, right?

Actually, it’s too easy. That $25 represents a cost- plus approach—but cost-plus is not the same thing as applying markup to achieve the profit you deserve.  Cost-plus minimally will cover your cost of goods but will not cover your overhead and profit—so while charging $125 may allow you to tread water, it’s not necessarily going to add to your savings account.

Confusion between applying markup and cost-plus causes many contractors to charge less than what they really should. Remember: Cost-plus simply refers to what you charge beyond the direct cost of an item. It doesn’t address things like marketing costs, job supervision, sales commissions, office expenses, insurance, licensing fees, taxes, employee benefits—you get the idea.

Returning to our example of the $25 cost-plus, then, that contractor may not even break even, much less turn a profit. The question, then, is how do you calculate your markup?

Calculating Markup, Ensuring Profit

First, understand that, in calculating your markup, you must include both overhead and profit. If you don’t account for overhead, you’ll lose money. And if you don’t make profit, you won’t be in business for long. Companies need to generate profits to survive, plain and simple.

Calculating your overhead means adding all those “soft” expenses—basically any costs or spending your company does over the course of a year—to find your break-even point. Those costs should be factored into the markup for each job you do.

Something else you’ll need to know is the cost of goods—basically, the direct cost of each job, before any markup. This includes materials and supplies but also the hourly rate of your employees who work the job.

When you add your cost of goods, overhead, and whatever kind of profit margin you want to make, you may find that you need to come close to doubling the direct cost; so, returning to our previous example, rather than charging $125 for a $100 job, charging $200 is probably much more realistic.

There are online calculators and apps you can use to help you with the specific numbers; we recommend the Marcus Margin Calculator, which you can download from the app store of your choice. It offers the ability to input your costs and the desired margin who want on the costs to get to your selling price.

The key to this is understanding your overhead and profit needs. Typically, a successful HVAC and Plumbing business needs 25 percent to 30 percent in overhead costs and achieves minimally a 10 percent Net Profit. Therefore, you need to have a markup to achieve a 40 percent Gross Profit Margin. The markup for this is 1.66 multiplied times your direct costs.  A 50 percent Gross Profit Margin is 2.00 times the direct costs.

Of course, we also recommend giving Contractor in Charge a call. We offer free consultations, and we’d love to sit down with you, look through your books, and help you determine what you should be charging for your services. Ultimately, we want to show you how to make your company truly profitable. Start that conversation with us today; reach out to Contractor in Charge now!