For those that know us well, you would agree that understanding your financial health is probably the one topic that we seem to rant about the most and for good reason… it is just that important!
How else do you make critically important decisions about the business on a day-to-day basis?
As an owner of a trade business (or any business for that matter) you MUST have a solid understanding of your financial health through the analysis of your financial statements.
I know, I know, you probably think you don’t have the time to look at your finances frequently, or maybe you have the time but you really just don’t know what to analyse? Or… you perhaps you have the time, know exactly what to analyse BUT you actually don’t want to know the truth… the cold-hard facts of how well (or poor!) your business is truly doing (Ignorance is bliss, right? WRONG!) ?
If this sounds like you then let me give you this one, fail proof tip. Get a GREAT accountant (yes, spend the extra money if you need to).
A great accountant will not only assist to create your financial statements, they will help you analyse them and assist decision-making around your finances.
A great accountant will also make it easier to “watch” your numbers on a financial dashboard. This will provide, at a glance, a snapshot of the key metrics you should be watching most frequently in your trade business.
With your accountant, decide exactly what financial heath indicators you need to look at daily and weekly. There are some generic ones that all trade businesses should look at which we have provided examples for below. However, there are other financial metrics that are specific to your particular trade.
Once your accountant has helped you do this, they can create a dashboard that you can review at the click of a button on a daily and weekly basis. The beauty of cloud accounting, right!?
Some key financial figures you might want to include on your dashboard are;
– Break Even OR Break Even plus 20% profit margin (you choose the margin you are aiming for)
– Accounts payable (money you owe)
– Accounts receivable (money owed to you cut by under 30days, over 30 days)
– Business bank balance
– Gross Profits (GPs) per tradesmen
In addition to the actual financial figures on your dashboard, with the assistance of your target profit margin, you can create specific daily and weekly goals for the company and/or per truck/tradie.
Interestingly, a great deal of trade business owners say to us ‘but I don’t want my tradie to know a daily target. They’ll know how much I make a week!”. The thing to remember is that it is a gauge only, not reflective of the running costs of the business. Besides, how do they challenge themselves, or each other for that matter, if they don’t know what they are aiming for? They need a goal… When the whole team is working towards the same purpose there is massive power!
Understanding your company financial health is critical as a business owner if you want to be empowered to make calculated decisions on a daily basis. It is the difference between a smart, savvy tradie and a struggling tradie. Don’t let it slip!
If you want a simple tradie explanation about ‘Understanding Your Numbers’ from one tradie to another, then check out Episode 4 of The Tradie Show: ‘The Tradies Guide to Understanding Your Numbers’.
- 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.