As the year comes to a close, it's time to consider what you accomplished this year and what you want to accomplish next year. Even though many remodelers today are overwhelmed by the volume of work, it is important to take a few moments to explore ways to improve profits. Here are a few suggestions for places to look.
Review Your Accounting Setup
If your chart of accounts was set up by your accountant, it's likely that tax preparation, not financial analysis, was the objective. Since your accountant needs your file one day a year, and you need it 365 days a year, you may prefer to have a management profit and loss instead.
The difference is simply that instead of adhering to the "rules" of Generally Accepted Accounting Practices (GAAP), a management P&L classifies some costs "incorrectly" because that provides more valuable information. Two examples are the principal paid on loans and draws (for a sole proprietor) and distributions (for S corps), which technically both belong on the balance sheet. When they are classified as "Other Expenses," however, they will appear on the P&L and give you a better sense of your net profit, less any money you pulled out. This can prevent you from being lulled into a false sense of comfort by showing a profit, but pulling out more than the profit for personal expenses. Your accountant can make a simple adjustment to "correct" these numbers for tax preparation purposes at the end of each year.
Review Your Labor Costs
If you don't know how much your employees are really costing you, you may undercut yourself when you estimate job costs. Consider the costs of small tools, electronics, and travel. If you provide cellphones for communications or tablets for in-field estimating, or pay for a time-clock app, be sure you include that as a labor burden. Now might also be the time to review your cellphone plan to see if you can cut costs. If you provide company vehicles or a mileage stipend for employees using their own vehicles, review the costs to see whether it is cheaper to reimburse mileage at more than 55 cents a mile or to provide a vehicle whose costs will also be tax deductible. If the cost of small tools seems excessive, investigate the reasons. Maybe your findings will lead you to require employees to provide their own specified set of tools.
Look for Inefficiencies and Time-Wasters
It's a truism that the the job will expand to fill the time available. Do your project managers have a time budget for tasks? If not, you may find that production time doesn't match the time allowed by the estimator. Is this a production issue or an estimating issue? The discrepancy may be in the way you track production time.
Look for places to trim non-billable time. Of course, this is possible only if you have a process for recording both billable and non-billable time within your time-tracking system. Non-billable time includes material runs, windshield time (driving time), setup and cleanup time (frequently underestimated), and inefficiently run meetings. If you aren't already doing so, modify your time-tracking process to allow employees (and that includes you) to record this time. You can't improve what you can't measure and you might be surprised by what you find when you start collecting this kind of data.
Putting these suggestions into practice now may give you a jump on improving the productivity and profitability of your upcoming year.
