Do you know your trade business financial ‘facts’? And by this I mean, the financial figures on the ‘incomings’, ‘outgoings’ and accumulated debt in your trade business that will map out whether or not you are ACTUALLY making money…
Simply having money in your bank account is not the tell-all sign that your trade business is making the money it could and should be making.
To get accurate insight into the financial health of your business you must not only keep your financial figures up to date, but you also need to understand them.
Having this understanding is of paramount importance if you want to get a true view of your income after your ongoing costs and debt has been deducted.
It’s these figures that indicate the true health of your trade business, and it’s these figures that should be considered before making ANY major business decision.
Trade business owners must understand the financial figures from past and present business activities and then use these to plan for the future of their business.
The benefits from looking at the past figures of your business by analysing your Profit and Loss Statement (PNL) and Balance Sheet are exponential, it is for this reason it will be covered at The Future Tradie and why this article will be centered around exactly that.
Looking into any financial report can at first seem very overwhelming. But, when you know what to make of the numbers in front of you, you will start to see value in this sometimes seemingly tedious process and the task starts to appear far more manageable.
So, presuming you’re a trade business owner wanting to understand more about the financial health of your trade business, you’re probably wondering where to even start in order to make sense of these financial ‘facts’. Here are three suggestions on how you can start making sense of these ‘facts’ NOW and secure a profitable future for your trade business.
1) Base business decisions on FACT
Use your financial information to make calculated and realistic business decisions.
No decision that involves spending money in your trade business should be made without first consulting your numbers. The facts. The reality.
It would be unwise to purchase an expensive piece of equipment, or hire a new staff member if you aren’t certain that you can afford the financial burden that this decision could have immediately or long-term for your business.
It reminds me of one of our Brisbane members. They called to say how excited they where to set up a team and buy equipment to break into the NSW market. They were super passionate about their plans, had a guy in mind and were literally about to push the button on purchasing equipment when they called for advice. I’m glad they did.
The idea was squashed. Why? Because its easy to have an opportunity in front of you that sounds like roses, but if you haven’t reviewed your numbers, the financial position of your business to support the initial outlay, not to mention complete some due diligence as to how much return the ‘venture’ will provide, then DON’T DO IT.
The boys look back now and say “so glad we rang you!! We would have thrown away $60K and a crazy amount of time for what!~!”
Don’t make any decisions for your business without considering financial data first.
2) Discover where you can make savings
Split your labour and materials in your Profit and Loss Statement. This allows you to clearly see the materials you have purchased versus the materials you have actually used in jobs.
This is a HUGE benefit to the financial health of your trade business…
When you can go through your Profit and Loss Statement line by line and explicitly see the quantity of materials you have used you will get a better picture of what materials may have gone missing or been wasted.
Understanding this empowers you as a business owner to monitor the way you and your staff are using and disposing of materials. This empowerment means that you can begin making changes in your business RIGHT NOW that will prevent wastage and save you a whole lot of money going forward!
One of our Lifestyle Tradie members realised by looking at their Profit and Loss Statement that using a skip bin once a week was costing the business $1200 a month. After looking at their numbers they were able to completely remove the skip bin and save that $1200 a month. They did this by:
– Being careful of wastage
– Returning unused stock
– Holding staff accountable with stock
– Arranging for the tradesmen to clear the rubbish at the end of the day
– Came to an agreement with suppliers to use their bins
It’s crazy how one simple decision can have such a massive financial impact! It makes you wonder about the expenses in your Profit and Loss Statement, doesn’t it..?
3) Predict the peaks and troughs of your trade business
The Profit and Loss Statement will help you see patterns in your business, especially when you compare year on year.
When you review this statement it is highly possible that you will notice patterns where by certain months of the year are busier or slower than others
Knowing these patterns will enable you to plan…
Predicting that this may reoccur equips you with the time you’ll need to implement a strategy that will reduce the effects such a situation could have on your business.
For example, hypothetically, if you know that historically November is an exceptionally busy time for your trade business then you know that in order to prepare for this you my need to hire a new staff member, or inform the team early that annual leave can not be taken within that month. If your trying to hire someone, as you know, it’ll most likely take a while to find, hire and train someone, so you may want to start this process early, not in November when it’s too late! That’s when you’ll end up just accepting rubbish!
The knowledge you have from reading the P&L about trends within your business simply empowers you as a business owner.
The reverse is often true for most trade business owners that complete a particular tough month or two and then afterwards might say “I remember now it was like this last year at the same time!”. You could have planned in advance for this if only you’d analysed and understood your P&L.
So there you have it, three ways you can make sense of those confusing financial ‘facts’ of your trade business.
If having control over your businesses finances in order to secure a profitable future for your trade business is something that is a priority for you then I highly suggest coming along to The Future Tradie. CLICK HERE for more information.
What’s next?
- Join our Kick-Ass Tradies Facebook Group, for access to trade business specific conversations, tips and resources, plus a like-minded community of tradies.
- Book a 15-minute Game Plan Call with Andy, owner of Dr. DRiP plumbing and co-founder of Lifestyle Tradie, to clarify your priorities and get clear action steps.
