Construction business benefits from understanding the numbers
Mike owns and operates a construction business specializing in commercial properties. The business has been running for more than 20 years and has grown gradually over the years, with revenue now into eight figures. Unfortunately, profit margins are very slim and last year, Mike’s business barely broke even and he was unable to draw his usual dividend at the year end.
Mike’s accountant proposed a half-day session focused on the key numbers in the business. Together, they put together a plan to increase revenue by 50% over the next three years without increasing the cost base significantly. The starting point for that plan was to unearth inefficiencies in the business’ processes to cut significant time off the average build, enabling Mike and his team to do more with less. As the plan was implemented, profitability increased along with revenue.
Mike’s accountant also got him focused on his receivables. It transpired that on average, it was taking customers 90 days to pay despite agreed terms of 45 days. By crunching the numbers, it became apparent that even a reduction to 60 days with no increase in revenue would improve the cash position significantly, allowing Mike to take his wife on that Europe trip he had promised her for the past 10 years.
Experienced small-business owners will probably agree on one business maxim: We manage what we measure. You should understand which numbers or ratios are critical in your business and industry and manage, monitor and adjust your business plans and models around them. Lastly, don’t just look at your numbers to determine what needs fixing. Use them to pinpoint what’s working well in your business and do more of that.
All in all, a great outcome from a simple planning meeting. If you are frustrated with your revenue, profitability or cash flow, contact us today and we’ll be in touch to discuss how we can help.
This article is published by Modoras Accounting (Gold Coast) Pty Ltd ABN 62 601 145 199. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.