Elevate your Construction Business: 8 weeks to reach the next level
Change your Business; Change your Life
Week 1: Get your financials in order
You should be able to run financial statement reports from your software (QuickBooks, Xero, Freshbooks, Sage, etc.) that make sense to the casual observer. If this is not the case for your business, then catch up your accounting and financial information. You will need to ensure you have the transactions coded to the correct account (sales, expense, asset or liability) for the period under review. You should look back at least 12 months if not the entire previous year.
You will need to make sure the following are accurate:
- Bank accounts are reconciled accurately each and every month
- Accounts receivable and accounts payable sub-ledgers equal the general ledger
- Fixed Asset (property, plant & equipment) accounts are right and you have recorded depreciation
- Equity accounts should be correct as well
Once this all checks out, you should be able to run the “canned” financial statements from the software and get an accurate and clear picture of where you stand for this period. You are looking for a balance sheet, an income statement or profit and loss, and lastly a cash flow statement. Find them and study them!
If you don’t have or can’t get this right, then stop reading because the rest doesn’t matter.
Week 2: Understand your cost
Part 1: overhead & fixed costs
You generally have 2 types of cost from your business that hit your profit & loss (P&L) statement. The 1st is fixed costs and the 2nd is variable costs. More on variable costs in the next week. Fixed costs are generally in the “overhead” section of the P&L. This section is also referred to as the “Selling, General & Administrative” section. These fixed costs are just what they sound like – they are fixed in nature and do not directly fluctuate with rises or falls in revenue.
You want to understand each one of these and get these under control and as lean as possible given your current workload. Of course don’t cripple the business because you don’t have a receptionist, but you get my idea. Just be lean about overhead costs.
Week 3: Understand your cost
Part 2: Variable & specifically labor costs
As I mentioned last week, you have 2 major categories of costs. The 2nd is variable costs and as you might have guessed, these costs are directly tied to revenue trends. If revenue goes up, so do the variable costs and if it goes down so do these costs. Variable costs are generally found in the “cost of goods sold” (COGS) section of the P&L. The COGS section is right under your revenue or sales section of the P&L.
You MUST get these expenses under control and watch them like a hawk! This is what makes or breaks your overall job profitability. It is extremely easy to have costs overruns on jobs and not know it until it is too late. The job has long since been over and you are just finding out that the labor was 20% over budget and as such your job lost money. Often times we are so busy that we can’t manage this adequately, and I suggest you do what is necessary to get your arms wrapped around this section.
Week 4: Know your sales drivers
Where do your sales come from? Do you have a sales force? Is it word of mouth? Are you completing a zillion RFP’s or RFQ’s? What about your sales pipeline? Do you even know how full the pipeline is? Are your sales regional or are they more on a national level?
These are all legitimate sales questions and you, as the business owner, should have the answers. If you don’t, then let’s start there and get the answers. While you are getting those answers be sure and put a “system” in place for the pipeline so that you are automatically updated.
Week 5: Budgeting, sales cycles, & lead times
How long does it take from a quote to getting an awarded job? What outside forces drive your sales numbers?
I am assuming you do at least an annual budget. If so, then you should also know your quoting win percentage or how many quotes you will win. Now with this information you can calculate how many quotes you need to do in a year to hit your sales goal. Then you can back up the yearly number to monthly and even weekly. Then you can tack on the lead time and understand your cash flow budget throughout the year.
You should also look at the outside forces, maybe it is housing starts, or federal infrastructure spending or changes in unemployment. Once you understand this metric, then you should start tracking the metric. Go back and see how closely your historical sales are tied to this metric. This allows you to predict your sales or quote opportunities based on the prediction of the metric itself.
Week 6: How to best capture costs & invoice (bill) your jobs
You should be using the accounting software (QuickBooks, Xero, etc) to capture your labor costs and material costs or essentially your COGS. This allows you work up a customer invoice based on costs, if that is the agreement. Absolutely, this is best if it is a costs plus job.
Regardless of the billing arrangement, it is paramount to have a job file, either electronic or paper based, for each and every job. In this file you can have the original quote, a budget, any correspondence or emails, labor reports, and finally a copy of all invoices paid for things like materials and equipment rental. This single file allows you to understand all the costs that hit this particular job and how you actually performed against your budget.
If using your software correctly you can lean heavily on the functions within the software to help with these job files. Of course, from this file you can easily prepare an invoice for the customer.
Week 7: Time management, freedom, & flexibility
Freedom and flexibility is like music to my ears, however, often times contractors have zero of this attribute in their daily schedule.
This is the week where we automate everything we can. If using software properly, quotes, bids, awards, costs, and invoices are all at a minimum semi-automated. So take an inventory of your systems and your workflow and try to automate anything that even smells like a manual process during your day.
Take time to delegate any task that you don’t like or anything that can be delegated. Even if it means hiring another person or virtual assistant, delegation is the key to happiness. Keep in mind that proper delegation comes with instructions, feedback, and some patience.
Week 8: Develop a killer dashboard
Last but not least, we need to develop a killer dashboard. This dashboard is a one stop place that will house all the necessary financial information that you want to look at each day. Hopefully, this is something that is automatically updated. Normally I like to build these in Microsoft Excel and have them linked to the software tool. However, many software versions include such a dashboard. Make a list of the top 10 – 15 things you want to see each and every day and create a dashboard that you can easily glance at for an update.
I am launching an online workshop soon that explores each of these in much greater detail. This workshop will become a key resource in helping you get to the next level, change your business, and change your life.
Please, sign up HERE to be one of the 1st notified when we go live.
If you would like to further explore any of these steps, please reach out to me at firstname.lastname@example.org
All the best,