You might have given up personal New Year's resolutions, but your business still deserves that you make firm commitments to improve. So start 2014 off right: Get your numbers right. Here are five tasks to help you do that.
- Start off the new year by cleaning up the old: Tie the year-end 2012 balance sheet from your accounting software into that of your tax return. This gives you a clean platform from which to judge 2013 performance against 2014.
- Make sure you've booked all income for 2013 in that year and not in 2014. If you have large jobs running into 2014, do an over/under billings calculation to assure yourself that you put revenues into the right months.
- Set up a company budget for 2014 in your accounting software so you can review progress monthly. Budget for at least 8% net profit after taking out 10% of revenues for an owner salary. Update at least bi-annually—or even quarterly, for better or for worse, if things change significantly. Pay as much attention to how the company budget compares with actual results as you do comparing job estimates to actual results.
- Now you're ready to dig into the profit/loss reports.
- Build a clear process, from the field to the bookkeeping, that will enable you to post all costs associated to jobs. You want a system that enables you to post to the right job, the right division of work, and the right month in which the work was done.
- Separate job costs from overhead expenses—costs related to running the company and not individual jobs—so that the gross profit dollar from the profit/loss equals that from the job cost reports. Reconcile this at the end of every month.
- Review and analyze estimated job costs to the actual results at the end of every payroll period. Do this on a division-of-work basis, not just for the bottom line. You could easily be spot-on at the bottom line while individual line items contain significant variances. Do this for all large jobs (whatever that means to your company) regularly. Then watch production and estimating improve.
Make your company (and your life) better by building routines to produce good financial and job cost reports and by reviewing them regularly. Make course corrections based on what you learn and voila! 2014 will start on the right track.