Know Your Financial Numbers
How do you know if you are making money?
It’s very important to know your numbers, i.e. your financials, and which numbers you should make sure you watch.
The worst place to be is a million dollar company, and not make any profit.
In this article, we will specifically be talking about the numbers in your financial report.
Let walk through how to set up your numbers and then how to compare them from last year, the most accurately.
All financial statements are different and each business will probably have a different list of accounts.
Let’s look at four main sections.
P&L - starts with the money coming in, also known as Revenues, you can divide the revenues into residential interior, residential exterior, commercial interior, commercial exterior and other or miscellaneous. This will allow you to tell how much you have coming into each category.
Cost of Sales- which includes:
- Direct labor (workers, including yourself, if you still work in the field),
- Commissions (from what the sales person gets for selling a particular job)
- Payroll taxes for your employees
- Materials and supplies for the job
- Insurance (Workers compensation, service trucks, and all work vehicles.
All these items are cost of goods sold and are dedicated to a certain job.
Target Cost of Sales is about 50% of total revenue.
This contains all office, officers’ salaries and their payroll taxes.
Office rent, electricity, paper, computers and everything else that is not bought for a certain job.
Lower overhead can lead to higher profit.
Target Overhead is about 30% of total revenue.
Net Income-This is what is left for you and your family.
Target Cost of Sales is about 12-20% of total revenue depending how your salary/owner draw is set up
How to Most Accurately Compare
Check your numbers at least monthly on a report called a Profit & Loss or better known as a P&L.
Compare them to last month, same month last year, year to date, and year to date last year.
When comparing, use the percentages.
Most of the time percentages are easier to compare because the more you make, the more you spend. All the percentages are compared to the income brought in.
Peter Drucker says, “If you can’t measure it, you can’t improve it.”
That’s good, but I prefer, “If you can measure it, you can improve it.”
So, how are you measuring and are you improving season to season, year to year?