When reading this title, you may first think of taking a swim in a pool during the summer heat of 2020. Yes, diving deep into the pool where the water is cool would be refreshing.
However, the “Diving Deep” that I am thinking of is not about swimming but about a mid summer “Diving Deep” into your Company’s financials.
Three months ago, many contractors were sitting at home during the COVID19 lockdown. Yet today, many contractors are running their feet off. Sales call volumes are high, operation teams are stretched thin and administration functions are an after thought.
But do you know whether you are making money, breaking even, or making a profit? Being busy is good, but not if you are not profitable. A financial deep dive involves summarizing the profit & loss statement into a 1-page report, cross referencing actuals to budget, reviewing each Cost of Goods Sold account (Materials, Equipment, Subs, Labour) and Overhead account. Many times, amortization and depreciation aren’t accounted for and ends up being a big surprise at the end of the year.
The review includes questions around production & labour rates, material, and subcontractor markups, KPI’s, job costing and incentive programs. If sales are below budget for 1-3 months, adjustments need to be made to the hourly rates and overhead recovery %. Otherwise profits will not be realized.
Bert Hoytema – Earthworks Landscaping knows firsthand and made this comment. “Two years ago, I was going crazy, discounting my services to get work, and jumping from job to job trying to please everyone. Sure, we had lots of work, but we did not have a clue whether we were making money or losing money.
We then decided to work with Southbrook Consulting. Today, we complete monthly financial deep dives where we review our Profit & Loss and Balance Sheet. We know exactly where we stand, and Nathan continues to challenge us to become more efficient along the way. The difference is night and day!”
In the end, it’s important to have your finger on the pulse of your business.
If you are looking for assistance in completing a “Deep Dive” of your company’s financial statements, please contact me.