Future business success relies on reviewing the past
For many trade business owners, reviewing anything to do with the past of their business seems counter-intuitive. Like anything in life, we can learn great things from the past and use it to shape the future. When it comes to your trade business, this is especially the case with your past financial statements.
Your past financial statements tell powerful “stories” which you can leverage to assist future forecasting or change your trade business’s future. One of the most telling “stories” in your trade business financials is that of peaks and troughs in your business – the busy and quiet times in your business.
How can you identify the peaks and troughs?
When you break down your financial statements by month and see the rise and fall of trade over the course of 12months, it is, on its own, a ‘story’. It shows months that were stronger or weaker, months that had a greater turnover and hence a stronger profit margin.
Take this one step further and compare each month with the same month from year to year (for example, comparing May 2015, May 2016 and May 2017), you’re likely to see patterns of peaks and troughs (or busy and slow times) in your business across the years. This could tell a ‘story’ that April-May-June have been slow months 3 years in a row, and ‘Oct-Nov-Dec’ are the strong ones.
Until you look at your past financial statements, you are merely making guesses. Guesses that can carry large consequences to your business’s future growth and profitability.
Why are the peaks and troughs important?
Understanding patterns of busy and quiet months in your trade business allows you to make educated decision in many areas, particularly in these 3 key areas:
1. Staffing requirements
When you’re overstaffed your business is at risk of having un-motivated and bored staff. You are simply wasting money and underutilising your team.
When you’re understaffed your business is at risk of harbouring a stressful and tiring work environment for your staff, and hence running the risk of failing to meet and exceed customer expectations.
When you know the busy and quiet months of your business you can strategically plan for your staffing requirements. It will empower you to;
1) Hire in advance; and
2) Set hiring terms that meet your business needs.
If, based on previous years, you’re predicting a busy November and December but a quiet January, February and March, you can hire accordingly. A busy period followed by a slow period may prompt you to source a tradesperson on a temporary contract basis rather than on a full-time contract basis.
When business is going well, the work is flooding in and you’re making solid profits, it can be tempting to invest your money in new “toys”, equipment or extras. After all, you’re making money so you can afford it, right? Wrong.
If you haven’t considered that past peaks and troughs in your business using your financial statements, you have no true indication as to whether your current financial situation is going to sustain itself. If it’s not sustainable and you’ve already made a large purchase, you could end up in major financial troubles.
How can you predict if you should make the purchase or not?
It’s better to purchase if…
There has been monetary growth in this busy month from year to year, you’re forecasting that the busy times will sustain themselves over the next couple of months (because they previously consistently have) and the investment in this new equipment will provide greater efficiencies, or will allow you to do work you previously haven’t been able to, thus bringing in additional profits.
It’s better not to purchase if…
Your financial statements indicate that your current busy month has consistently been busy in previous years and quiet times have historically followed. It is important not to spend your ‘cash reserve’ seeing you might need to lean on it to prevent a cash gap (an important conversation for another time… its that important we covered this subject at our recent Re-Ignite & Re-Unite live event at Port Douglas in July 2017).
3. Planning for troughs
Unfortunately, quiet times are inevitable and for the most part, out of your control. But, if you use these quiet times constructively they can work as a benefit. When you’ve predicted, from your past financial statements, that there are less profitable months for you, you could.
- Plan in advance promotional activities at this time to prevent it from being quiet at all (no more quiet months!)
- Use this time for planning, strategising and continued education, such as through Lifestyle Tradie membership
- Go on a guilt free holiday!
Wondering how else you can best utilise these quiet times?
Visit Next Level Tradie for our schedule of live events.